filings.toolsItem 1. Business
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Item 1. Business
General
Amphenol Corporation is one of the world’s largest designers, manufacturers and marketers of electrical, electronic and fiber optic connectors and interconnect systems, antennas, sensors and sensor-based products and coaxial and high-speed specialty cable. The Company estimates, based on recent reports of industry analysts, that worldwide sales of interconnect and sensor-related products were approximately $235 billion in 2022.
Certain predecessor businesses of the Company were founded in 1932, and the Company was incorporated under the laws of the State of Delaware in 1986. The Company’s Class A Common Stock (“Common Stock”) began trading on the New York Stock Exchange in 1991.
Reportable Business Segments
The Company’s strategy is to provide our customers with comprehensive design capabilities, a broad selection of products and a high level of quality and service on a worldwide basis, while maintaining continuing programs of productivity improvement and cost control. Effective January 1, 2022, the Company aligned its businesses into three newly formed reportable business segments: (i) Harsh Environment Solutions, (ii) Communications Solutions and (iii) Interconnect and Sensor Systems. This new alignment, which replaced our historical reportable business segments, reinforces the Company’s entrepreneurial culture and the clear accountability of each of our business unit general managers, while enhancing the scalability of Amphenol’s business for the future. All businesses previously reported in the Interconnect Products and Assemblies segment have been aligned with one of the three newly formed segments. All businesses previously reported in the Cable Products and Solutions segment have been aligned with our newly formed Communications Solutions segment.
A description of each of our newly formed reportable business segments is as follows:
●Harsh Environment Solutions – the Harsh Environment Solutions segment designs, manufactures and markets a broad range of ruggedized interconnect products, including connectors and interconnect systems, printed circuits and printed circuit assemblies and other products.
●Communications Solutions – the Communications Solutions segment designs, manufactures and markets a broad range of connector and interconnect systems, including high speed, radio frequency, power, fiber optic and other products, together with antennas.
●Interconnect and Sensor Systems – the Interconnect and Sensor Systems segment designs, manufactures and markets a broad range of sensors, sensor-based systems, connectors and value-add interconnect systems.
The following table provides a summary of the end markets that we service and our key products within each of the three reportable business segments:
| Reporting Segment | Harsh Environment Solutions | Communications Solutions | Interconnect and Sensor Systems | |||
|---|---|---|---|---|---|---|
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| % of 2022 Net Sales: | 25% | 45% | 30% | |||
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| End Markets | | ● Automotive ● Commercial Aerospace ● Industrial ● Information Technology and Data Communications ● Military ● Mobile Networks | | ● Automotive ● Broadband Communications ● Commercial Aerospace ● Industrial ● Information Technology and Data Communications ● Military ● Mobile Devices ● Mobile Networks | | ● Automotive ● Commercial Aerospace ● Industrial ● Information Technology and Data Communications ● Military ● Mobile Networks |
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| Key Products | | Connectors and Connector Systems: ● harsh environment data, power, fiber optic and radio frequency interconnect products Value-Add Products: ● backplane interconnect systems ● cable assemblies and harnesses ● cable management products Other: ● flexible and rigid printed circuit boards | | Connectors and Connector Systems: ● fiber optic interconnect products ● high-speed interconnect products ● radio frequency interconnect products Value-Add Products: ● cable assemblies and harnesses Antennas: ● consumer device antennas ● network infrastructure antennas Cable: ● coaxial, power and specialty cable Other: ● hinges and other mechanical products ● production-related products | | Connectors and Connector Systems: ● busbars and power distribution systems ● power interconnect products Value-Add Products: ● backplane interconnect systems ● cable assemblies and harnesses Sensors and Sensor-based Products: ● force ● gas and moisture ● level ● position ● pressure ● temperature ● vibration |
In conjunction with the new alignment of our business, the Company appointed three new segment managers to lead their respective reportable business segments, each reporting directly to the Company’s Chief Executive Officer. The Company began reporting under its new reportable segments in connection with its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 and for each quarterly period thereafter. Throughout this Annual Report, the Company is reporting under the new reportable segments structure, which includes the recasting of relevant segment information for the years ended December 31, 2021 and 2020, in order to enable year-over-year segment comparisons.
For further details related to the Company’s reportable business segments, information regarding the Company’s operations and results by reportable segment, as well as the Company’s net sales and long-lived assets by geographic area, refer to Note 13 of the Notes to Consolidated Financial Statements, which is incorporated herein by reference.
Reportable Business Segments prior to 2022
Through December 31, 2021, the Company operated through two reporting segments: (i) Interconnect Products and Assemblies and (ii) Cable Products and Solutions. The Interconnect Products and Assemblies segment primarily designed, manufactured and marketed a broad range of connector and connector systems, value-add products and other products, including antennas and sensors, used in a wide range of applications in a diverse set of end markets. Interconnect products included connectors which, when attached to an electrical, electronic or fiber optic cable, a printed circuit board or other device, facilitate transmission of power or signals. Value-add systems generally consisted of a system of cable, flexible circuits or printed circuit boards and connectors, antennas or sensors for linking electronic equipment. The Cable Products and Solutions segment primarily designed, manufactured and marketed cable, value-add products and components for use primarily in the broadband communications and information technology markets, as well as certain applications in other markets.
COVID-19 Pandemic
Since early 2020, the COVID-19 pandemic has disrupted our offices and manufacturing facilities around the world, as well as the facilities of our suppliers, customers and our customers’ contract manufacturers. These disruptions have included, and may continue to include, government regulations that inhibit our ability to operate certain of our facilities in the ordinary course, travel restrictions, supplier constraints, supply chain interruptions, logistics challenges and limitations, labor disruptions and reduced demand from certain customers. During much of 2022, COVID-19 outbreaks in China resulted in local or regional government-imposed lockdowns and restrictions, which impacted the ability of several of our operations and manufacturing facilities to operate in the ordinary course. As of December 31, 2022, there continue to be isolated COVID-19 outbreaks in certain regions of the world, particularly in China, but these outbreaks have not had a significant impact on our operations. The extent to which the COVID-19 pandemic will continue to impact our business, operations, financial condition, liquidity and results of operations in 2023 and beyond remains uncertain and unpredictable. For a discussion of certain risks related to the COVID-19 pandemic, refer to the risk factor titled “We may be negatively impacted by adverse public health developments, including epidemics and pandemics, such as the COVID-19 pandemic” in Part I, Item 1A. Risk Factors herein. For a discussion of the financial impact of the COVID-19 pandemic on our business, operations, financial condition, liquidity and results of operations, refer to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Our Strategy
The Company’s overall strategy is to provide our customers with comprehensive design capabilities, a broad selection of products and a high level of quality and service on a worldwide basis, while maintaining continuing programs of productivity improvement and cost control. Specifically, our business strategy is as follows:
| ● | Pursue broad market diversification - The Company constantly strives to increase the diversity of its markets, customers, applications and products. Due to the tremendous variety of opportunities in the electronics industry, management believes that it is important to participate wherever significant growth opportunities are available. This diversification positions us to proliferate our technologies across the broadest array of opportunities and reduces our exposure to any one particular market, thereby reducing the variability of our financial performance. An overview of the Company’s market and product participation is described under “Markets”. |
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| ● | Develop high-technology performance-enhancing solutions - The Company seeks to expand the scope and number of its preferred supplier relationships with customers across its diverse end markets. The Company works closely with its customers at the design stage to create and manufacture innovative solutions. These products generally have higher value-added content than other interconnect, antenna and sensor products, and have been developed across the Company’s end markets. The Company is focused on technology leadership in the interconnect areas of radio frequency, power, harsh environment, high-speed and fiber optics, as well as antennas and sensors, as it views these technology areas to be of particular importance to our global customer base. |
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| ● | Expand global presence - The Company is strategically expanding and shifting its global manufacturing, engineering, sales and service operations to better serve its existing customer base, penetrate developing markets and establish new customer relationships. As the Company’s global customers have grown their international operations to access developing world markets and lower manufacturing costs, the Company is continuing to expand and shift its international footprint in order to provide real-time capabilities to these customers. The majority of the Company’s international operations have broad capabilities, including new product development. |
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| The Company is also able to take advantage of the lower manufacturing costs in some regions, and has established low-cost manufacturing and assembly facilities around the world. |
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| ● | Control costs - The Company recognizes the importance in today’s global marketplace of maintaining a competitive cost structure. Innovation, product quality and performance, and comprehensive customer service are not mutually exclusive with controlling costs. Controlling costs is part of a mindset. It is having the discipline to invest in programs that have a good return, maintaining a cost structure as flexible as possible to respond to changes in the marketplace, working with suppliers and vendors in a fair but prudent way to ensure a reasonable cost for materials and services and creating a mindset where managers manage the Company’s assets as if they were their own. This mindset was particularly important in 2021 and 2022, as supply chain challenges and inflationary pressures accelerated. |
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| ● | Pursue strategic acquisitions and investments - The Company believes that the industry in which it operates is highly fragmented and continues to provide significant opportunities for strategic acquisitions. As a result, we continue to pursue acquisitions of high-potential companies with strong management teams that complement our existing business while further expanding our product lines, technological capabilities and geographic presence. We seek to enhance the performance of acquired companies by leveraging Amphenol’s position with customers across our diverse end markets, our leading technologies and our access to low-cost manufacturing around the world. In 2022, the Company invested approximately $288 million to fund two acquisitions, while in 2021, the Company invested approximately $1.5 billion (net of the proceeds received from the divestiture of MTS Systems Corporation’s (“MTS”) Test & Simulation business in December 2021) to fund seven acquisitions, including the acquisitions of MTS’s Sensors business in April 2021 and Halo Technology Limited (“Halo”) in December 2021. Our acquisitions in 2022 and 2021 have strengthened our customer base and product offerings in many of our end markets and have brought a number of high-performing new management teams into the Company. |
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| ● | Foster collaborative, entrepreneurial management - Amphenol’s management system is designed to provide clear income statement and balance sheet responsibility in a flat organizational structure. Each general manager is incented to grow and develop their business and to think entrepreneurially in providing innovative, timely and cost-effective solutions to customer needs. In addition, Amphenol’s general managers have access to the resources of the larger organization and are encouraged to work collaboratively with their peers throughout the Company to meet the needs of the expanding marketplace and to achieve common goals. As the Company has grown, we have preserved this unique culture of entrepreneurship by ensuring that our executive organization can effectively drive the performance of and collaboration among our global general managers. The alignment of the Company’s businesses into three newly formed divisions, which represent the newly formed reportable segments effective January 1, 2022, reinforces this culture and clear accountability, and enhances the scalability of the Company’s entrepreneurial organization. |
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Markets
The Company sells products to customers in a diversified set of end markets. For a discussion of certain risks related to the Company’s end markets, refer to the subsection titled “Risks Related to our End Markets” included in Part I, Item 1A. Risk Factors herein.
Automotive - Amphenol is a leading supplier of advanced interconnect systems, sensors and antennas for a growing array of automotive applications. In addition, Amphenol has developed advanced technology solutions for hybrid and electric vehicles and is working with leading global customers to proliferate these advanced interconnect products into next-generation automobiles. Sales into the automotive market represented approximately 21% of the Company’s net sales in 2022, with sales into the following primary end applications:
| | | |
|---|---|---|
| ● antennas | ● lighting | |
| ● charging stations | | ● passenger connectivity |
| ● electric vehicles | | ● power management |
| ● engine management and control | | ● safety and security systems |
| ● exhaust monitoring and cleaning | | ● sensing systems |
| ● hybrid vehicles | | ● telematics systems |
| ● infotainment and communications | | ● transmission systems |
Broadband Communications - Amphenol is a world leader in broadband communication products for cable, satellite and telecommunications-based video and data networks, with industry-leading engineering, design and manufacturing expertise. The Company offers a wide range of products to service the broadband market, including customer premises and distribution cable, connectors and value-add interconnect products, passive components, active and passive fiber optic interconnect components, interconnect enclosures, as well as interconnect products integrated into headend equipment. Sales into the broadband communications market represented approximately 5% of the Company’s net sales in 2022, with sales into the following primary end applications:
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|---|---|---|
| ● cable, satellite & telecommunications networks | ● network switching equipment | |
| ● customer premises equipment | | ● satellite interface devices |
| ● high-speed internet hardware | | ● set-top boxes |
Commercial Aerospace - Amphenol is a leading provider of high-performance interconnect systems and components to the commercial aerospace market. In addition to connector and interconnect assembly products, the Company also provides rigid and flexible printed circuits, high-technology cable management products as well as sensors. Our products are specifically designed to operate in the harsh environments of commercial aerospace, while also providing substantial weight reduction, simplified installation and/or minimal maintenance. Sales into the commercial aerospace market represented approximately 3% of the Company’s net sales in 2022, with sales into the following primary end applications:
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|---|---|---|
| ● aircraft and airframe power distribution | ● in-flight entertainment | |
| ● avionics | | ● in-flight internet connectivity |
| ● controls and instrumentation | | ● lighting and control systems |
| ● engines | | ● wire bundling and cable management |
Industrial - Amphenol is a technology leader in the design, manufacture and supply of high-performance interconnect systems, sensors and antennas for a broad range of industrial applications. Amphenol’s core competencies include application-specific industrial interconnect solutions utilizing integrated assemblies, including with both cable and flexible printed circuits, as well as high-power interconnects requiring advanced engineering and system integration. In particular, our innovative solutions facilitate the increasing demands of embedded computing, power distribution and electrification within industrial applications. Sales into the industrial market represented approximately 25% of the Company’s net sales in 2022, with sales into the following primary end applications:
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|---|---|---|
| ● agriculture equipment | ● marine | |
| ● alternative and traditional energy generation | | ● medical equipment |
| ● batteries and hybrid drive systems | | ● oil and gas |
| ● entertainment | | ● power distribution |
| ● factory and machine tool automation | | ● public safety |
| ● heavy equipment | | ● rail mass transit |
| ● instrumentation | | ● semiconductor manufacturing equipment |
| ● internet of things | | ● smart manufacturing |
| ● LED lighting | | ● transportation |
Information Technology and Data Communications - Amphenol is a global provider of interconnect solutions to designers, manufacturers and operators of internet-enabling systems. With our industry-leading high-speed, power and active and passive fiber optic interconnect technologies, together with superior simulation and testing capability and cost effectiveness, Amphenol is a market leader in interconnect development for the information technology (“IT”) and datacom market. Whether industry standard or application-specific designs are required, Amphenol provides customers with products that enable performance at the leading edge of next-generation, high-speed, power and fiber optic technologies. Sales into the IT and datacom market represented approximately 21% of the Company’s net sales in 2022, with sales into the following primary end applications:
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| ● cloud computing and data centers | ● servers | |
| ● gaming systems | | ● storage systems |
| ● internet appliances | | ● transmission |
| ● networking equipment | | ● web service providers |
Military - Amphenol is a world leader in the design, manufacture and supply of high-performance interconnect systems for harsh environment military applications. Such products require superior performance and reliability under conditions of stress and in hostile environments such as vibration, pressure, humidity, radiation and rapid and severe temperature changes. Amphenol provides an unparalleled product breadth, from military specification connectors to customized high-speed board level interconnects; from flexible to rigid printed circuit boards; from backplane systems to completely integrated assemblies; and from sensors to sensor-based systems. Amphenol is a technology leader, participating in major programs from the earliest inception across each phase of the production cycle. Sales into the military market represented approximately 9% of the Company’s net sales in 2022, with sales into the following primary end applications:
| ● airframe | | ● naval |
|---|---|---|
| ● avionics | | ● ordnance and missile systems |
| ● communications | | ● radar systems |
| ● engines | | ● rotorcraft |
| ● ground vehicles and tanks | | ● satellite and space programs |
| ● homeland security | | ● unmanned aerial vehicles |
Mobile Devices - Amphenol designs and manufactures an extensive range of interconnect products, antennas and electromechanical components found in a wide array of mobile computing devices. Amphenol’s capability for high-volume production of these technically demanding, miniaturized products, combined with our speed of new product introduction, are critical drivers of the Company’s long-term success in this market. Sales into the mobile devices market represented approximately 11% of the Company’s net sales in 2022, with sales into the following primary end applications:
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| ● consumer electronics | ● production-related products | |
| ● mobile and smart phones, including accessories | | ● wearable and hearable devices |
| ● mobile computing devices, including laptops, tablets and e-readers | | |
Mobile Networks - Amphenol is a leading global interconnect solutions provider to the mobile networks market and offers a wide product portfolio, including antennas, connectors and interconnect systems. The Company’s products are used in current and next generation wireless communications standards, including in 5G networks. In addition, the Company works with service providers around the world to offer an array of antennas and installation-related site solution interconnect products. Sales into the mobile networks market represented approximately 5% of the Company’s net sales in 2022, with sales into the following primary end applications:
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|---|---|---|
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| ● antenna systems | ● mobile switches | |
| ● base stations | | ● radio links |
| ● core network controllers | | ● small cells |
| ● distributed antenna systems (DAS) | | |
Customers and Geographies
The Company manufactures and sells a broad portfolio of products on a global basis to customers in a wide variety of industries. Our customers include many of the leaders in their respective industries, and our relationships with them typically date back many years. We believe that our diversified customer base provides us with the opportunity to leverage our skills and experience across markets and reduces our exposure to particular end markets. Additionally, we believe that the diversity of our customer base is an important asset of the Company.
For many years, customers have generally been consolidating their lists of qualified suppliers to companies that have the ability to meet certain technical, quality, delivery and other standards while maintaining geographic flexibility and competitive prices. The Company has positioned its global resources to compete effectively in this environment. As an industry leader, the Company has established close working relationships with many of its customers on a global basis. These relationships allow the Company to better anticipate and respond to these customer needs when designing new products and new technical solutions. By working with customers to develop new products and technologies, the Company is able to identify and act on trends and leverage knowledge about next-generation technology across our
portfolio of products. In addition, the Company has concentrated its efforts on service, procurement and manufacturing improvements designed to increase product quality and performance and lower product lead-time and cost. For a discussion of certain risks related to the Company’s sales, refer to the subsection titled “Risks Related to our End Markets” included in Part I, Item 1A. Risk Factors herein.
The Company’s products are sold to thousands of original equipment manufacturers (“OEMs”) in numerous countries throughout the world. The Company’s products are also sold to electronic manufacturing services (“EMS”) companies, to original design manufacturers (“ODMs”) and to service providers, including telecommunications network service providers and web service providers. No single customer accounted for 10% or more of the Company’s net sales during either of the years ended December 31, 2022 and 2021.
The Company sells its products through its own global sales force, independent representatives and a global network of electronics distributors. The Company’s sales to distributors represented approximately 18% and 17% of the Company’s net sales in 2022 and 2021, respectively. In addition to product design teams and collaborative initiatives with customers, the Company uses key account managers to manage certain customer relationships on a global basis so that it can bring to bear its total resources to meet the worldwide needs of its multinational customers.
Manufacturing
The Company is a global manufacturer employing advanced manufacturing processes including molding, stamping, plating, turning, computer numerical control (“CNC”) machining, 3D printing, extruding, die casting, certain other manufacturing, automation and assembly operations and proprietary process technology for connectors, specialty and coaxial cable production, antenna and sensor fabrication. Outsourcing of certain manufacturing processes is used when cost-effective. Substantially all of the Company’s manufacturing facilities operate under certification to management system standards of globally recognized, industry certification organizations. Our facilities are primarily certified to quality management systems, primarily ISO9001, but also may include ISO13485, AS9100, and IATF16949. In addition, approximately half of our facilities are also certified to environmental or occupational health and safety management systems, including ISO14001 and ISO45001.
The Company’s manufacturing facilities are generally vertically integrated operations from the initial design stage through final design and manufacturing. The Company designs, manufactures and assembles its products at facilities in approximately 40 countries around the world. Our global coverage positions us near many of our customers’ locations and allows us to assist them in consolidating their supply base and lowering their production and logistics costs. In addition, the Company generally relies on local management in every region, which we believe creates a strong degree of organizational stability and operational agility, as well as a deeper understanding of local markets. We believe our broad and balanced geographic distribution lowers our exposure to particular geographies. This has been evident throughout the COVID-19 pandemic, as we were generally able to support our customers even if pandemic-related restrictions and other challenges were present in a particular geography. The Company believes that its global presence is an important competitive advantage, as it allows the Company to provide quality products on a timely and worldwide basis to its multinational customers, while at the same time offering a level of resiliency and diversification against local risks and challenges that may emerge in any single geography.
The Company employs a global manufacturing strategy to provide proximity and reliable service to customers, while also lowering production and logistics costs. Our strategy is to maintain strong cost and quality controls in our manufacturing and assembly operations. The Company evaluates and adjusts its expense levels and workforce to reflect current business conditions and attempts to maximize operating profitability as well as the return on capital investments. This strategy has been, and continues to be, critical to the Company’s ability to mitigate supply chain constraints and a higher inflationary environment, such as those experienced in 2021 and 2022. The Company sources its products on a worldwide basis. To better serve certain high-volume customers, the Company has established certain facilities near these major customers. The Company seeks to position its manufacturing and assembly facilities in order to serve local markets while coordinating, as appropriate, product design and manufacturing responsibility with the Company’s other operations around the world. For a discussion of certain risks related to the Company’s global operations, refer to the subsection titled “Risks Related to our Global Operations” included in Part I, Item 1A. Risk Factors herein.
Research and Development
The Company’s product development strategy is to rely on product design teams at each of our operating units around the world working collaboratively with customers, which often results in the Company obtaining approved vendor status for its customers’ new products and programs. The Company generally focuses its research and
development efforts primarily on those product areas that it believes have the potential for broad market applications and significant sales within a one- to three-year period. The Company seeks to have its products become widely accepted within the industry for similar applications and products manufactured by other potential customers, which the Company believes will provide additional sources of future revenue. At the end of 2022, our research, development and engineering efforts, which relate to the creation of new and improved products and processes, were supported by approximately 3,700 of our employees and were performed primarily by individual operating units focused on specific markets and product technologies.
Intellectual Property
We own a significant portfolio of patents that principally relate to mechanical, electrical, radio frequency, optical and electronic features of connector, antenna and sensor products. We also own a portfolio of trademarks and are a licensee of various patents and trademarks. Patents for individual products extend for varying periods according to the date of patent filing or grant and the legal term of patents in the various countries where patent protection is obtained. Trademark rights may potentially extend for longer periods of time and are dependent upon the laws of various jurisdictions and the use of the trademarks.
We also rely upon trade secrets, manufacturing know-how, continuing technological innovations and licensing opportunities to maintain and improve our competitive position. We review third-party proprietary rights, including patents and patent applications, as available, in an effort to develop an effective intellectual property strategy, avoid infringement of third-party proprietary rights, identify licensing opportunities and monitor the intellectual property claims of others.
From time to time, the Company is involved in disputes with third parties regarding the Company’s or such third party’s intellectual property assets, particularly patents. While we consider our patents and trademarks to be valuable assets, we do not believe that our competitive position or our operations are dependent upon or would be materially impacted by the loss of any single patent or group of related patents, or by a third party’s successful enforcement of its patents against us or any of our products. For a discussion of certain risks related to the Company’s intellectual property, refer to the risk factor titled “We may experience difficulties in enforcing our intellectual property rights, which could result in loss of market share, and we may be subject to claims of infringement of the intellectual property rights of others” in Part I, Item 1A. Risk Factors herein.
Raw Materials
The Company purchases a wide variety of raw materials for the manufacture of its products, including (i) precious metals such as gold, silver and palladium, (ii) aluminum, steel, copper, titanium and metal alloy products and (iii) plastic materials. The Company also purchases a wide variety of mechanical and electronic components for the manufacturing of its products. Such raw materials and components are generally available throughout the world and are purchased locally from a variety of suppliers. The Company is generally not dependent upon any one source for raw materials or components or, if one source is used, the Company generally attempts to protect itself through long-term supply agreements. From time to time, the Company may encounter difficulties in obtaining certain raw materials or components necessary for production due to supply chain constraints and logistical challenges, which may include regulatory restrictions. These difficulties may also negatively impact the pricing of materials and components sourced or used by the Company. While the Company does not currently anticipate significant, broad-based difficulties in obtaining raw materials or components necessary for production, in 2021 and 2022, there were supply chain and logistical challenges that impacted the global economy, including our Company, and caused and continue to cause supply constraints and commodity price increases on certain raw materials and components used by the Company in production, as well as decreased availability of, and increased prices for, freight and logistics, including air, sea and ground freight. As of December 31, 2022, while some of the supply chain and logistical challenges have eased, inflation continues to impact the cost of certain raw materials and components used by the Company. Given this environment, the Company may experience supply shortages for discrete raw materials or components in the future, which could be further exacerbated by increased commodity prices and additional inflation. For a discussion of certain risks related to the availability of and dependence on raw materials and components, refer to the risk factor titled “The Company and certain of its suppliers and customers have experienced difficulties obtaining certain raw materials and components, and the cost of most of the Company’s raw materials and components is increasing” in Part I, Item 1A. Risk Factors herein. Information regarding our obligations related to commitments to purchase certain goods and services is disclosed in Note 14 of the Notes to Consolidated Financial Statements.
Competition
The Company encounters competition in substantially all areas of its business. The Company competes primarily on the basis of technology innovation, product quality and performance, price, customer service and delivery time. Primary competitors include Aptiv, Belden, Carlisle, Commscope, Eaton, Foxconn, Glenair, HARTING, Hirose, HUBER+SUHNER, ICT Luxshare, JAE, Jonhon, JST, Molex, Phoenix Contact, Radiall, Rosenberger, Sensata, TE Connectivity, Yazaki and 3M, among others. In addition, the Company competes with a large number of smaller companies who compete in specific geographies, markets or products. For a discussion of certain risks related to competition, refer to the risk factor titled “The Company encounters competition in substantially all areas of our business” in Part I, Item 1A. Risk Factors herein.
Backlog and Seasonality
The Company estimates that its backlog of unfilled firm orders as of December 31, 2022 was approximately $4.1 billion compared with backlog of approximately $3.8 billion as of December 31, 2021. Orders typically fluctuate from quarter to quarter based on customer demand and general business conditions. Unfilled orders may generally be cancelled prior to shipment of goods. It is expected that nearly all of the Company’s backlog will be filled within the next 12 months. Significant elements of the Company’s business, such as sales to the communications-related markets (including wireless communications, information technology and data communications and broadband communications) and sales to distributors, generally have short lead times. Therefore, backlog may not be indicative of future demand. Generally, the Company does not experience significant seasonality in its business, although historically, the strongest quarters have typically been the last two quarters of our fiscal year.
Cybersecurity
In an effort to reduce the likelihood and severity of cyber incidents, the Company has a cybersecurity program designed to protect and preserve the confidentiality, integrity and availability of our data and systems. We perform risk assessments and penetration tests relating to cybersecurity and technology risks. We also conduct workforce training to instruct employees how to better identify cybersecurity concerns and to avoid actions that might inadvertently allow outsiders to access our systems. We have installed end point protection software on our Company-managed systems and workstations in an effort to detect and prevent malicious code from impacting our systems. The Company’s annual internal audits also include procedures performed on the control environment related to our information security systems. Our Board of Directors (the “Board”) maintains oversight responsibility relating to our information security and cybersecurity program, with assistance from the Audit Committee of the Board. At least annually, our senior leadership team (including the leaders of our Information Technology and Internal Audit teams) provides an update of our information security and cybersecurity program to the full Board. In addition, the Company maintains standard cybersecurity insurance. During the last three years, we have not experienced a material security breach and, as a result, we have not incurred any material expenses from such a breach. Furthermore, during such time, we have not been penalized or paid any amount under any information security breach settlement. For a discussion of certain risks related to cybersecurity, refer to the risk factor titled “Cybersecurity incidents affecting our information technology systems could disrupt business operations or cause the release of highly sensitive confidential information, resulting in adverse impacts to our reputation and operating results and potentially leading to litigation and/or governmental investigations and fines” in Part I, Item 1A. Risk Factors herein.
Environmental Matt****ers
Certain operations of the Company are subject to environmental laws and regulations that govern the discharge of pollutants into the air and water, as well as the handling and disposal of solid and hazardous wastes. The Company believes that its operations are currently in substantial compliance with applicable environmental laws and regulations and that the costs of continuing compliance will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows. For more information on certain environmental matters, refer to Note 14 of the Notes to Consolidated Financial Statements. For a discussion of certain risks related to environmental matters, refer to the risk factor titled “The Company is subject to environmental laws and regulations that could adversely affect our business” in Part I, Item 1A. Risk Factors herein.
Government Regulation
As a global company, we are subject to various laws and regulations applicable to parties doing business with the U.S. and other governments, including laws and regulations governing reporting obligations, interactions with government officials, performance of government contracts, the use and treatment of government furnished property and the nature of materials used in our products. In addition, the Company and its products are subject to import and export regulations present in each of the various jurisdictions in which we operate around the world. Certain of our products, including purchased components of such products, are subject to U.S. and non-U.S. export control laws and regulations, and may be exported only with the required export license or through an export license exception. The issuances of such licenses, in particular within the military market, are subject to complex laws and regulations that could change frequently and with limited notice, depending on the jurisdiction, geopolitical events or other factors. The Company has systems in place to apply for licenses and to maintain compliance with any such regulations. Separately, we are required to comply with certain U.S. and non-U.S. economic sanctions and trade embargoes.
For a discussion of certain risks related to government regulation, including export and import controls and sanctions, refer to the risk factors titled “The Company must comply with complex U.S. governmental export and import controls as well as economic sanctions and trade embargoes,” “Our business and financial results may be adversely affected by government contracting risks,” and “Our international operations require us to comply with anti-corruption laws and regulations of the U.S. government and various foreign jurisdictions, and our business reputation and financial results may be impaired by improper conduct by any of our employees, customers, suppliers, distributors or any other business partners,” in Part I, Item 1A. Risk Factors herein.
Environmental, Social and Corporate Governance
At Amphenol, we believe that making sustainable business choices, building strong relationships with our stakeholders and engaging in good corporate governance create long-term value for our Company. Whether through minimizing our and our partners’ environmental footprint, following humane labor practices, supporting the development and diversity of our global team, ensuring the strength and integrity of our supply chain or giving back to our communities, we have always believed that it is not just good stewardship, but good business to focus on the long-term sustainability of Amphenol. Throughout Amphenol, we have a shared commitment to create innovative products and enable technologies that improve the lives of people around the world, to support the well-being of our employees and communities and to sustain the health of our planet.
Sustainability Report
The Company publishes an annual sustainability report (“Sustainability Report”) to highlight our goals and areas of progress and success in sustainability matters, including climate-related topics. The Sustainability Report discusses our approach and progress on the environmental, social and governance (“ESG”) issues most significant to our business, including ESG-related strategies, programs, goals and metrics that demonstrate our commitment to our stakeholders. The Sustainability Report is designed to inform and engage the Company’s broad range of ESG stakeholders, such as employees, suppliers, customers, governments, community members and investors, among others. Our 2021 Sustainability Report was prepared with reference to the Global Reporting Initiative (“GRI”) Standards framework and topics identified as material under the Sustainability Accounting Standards Board (“SASB”) standards and outlines board and executive-level oversight of climate-related risks and opportunities identified in the Task Force on Climate-Related Financial Disclosures (“TCFD”) recommendations. The SASB standard and GRI and TCFD frameworks encourage companies to disclose climate-related topics that are important to certain interested stakeholders, even if not material for purposes of the U.S. securities laws. Furthermore, the materiality standards under these frameworks are different from the materiality standard under the U.S. securities laws. Our 2021 Sustainability Report is available on our website at https://amphenol.com/sustainability. The items discussed in our 2021 Sustainability Report have not required material capital expenditures or operating expenses, nor caused significant operational challenges or risks to the Company’s business or results of operations beyond those items disclosed in Item 1A. Risk Factors within the risk factors titled “The Company may be negatively impacted by extreme weather conditions and natural catastrophic events, including those caused or intensified by climate change and global warming,” “The Company is subject to, and may continue to be subject to, incremental costs, risks and regulations associated with efforts to combat the negative effects of climate change,” and “Increasing scrutiny and expectations regarding ESG matters could result in additional costs or risks or otherwise adversely impact our business”. Information included in our 2021 Sustainability Report is not incorporated by reference in, and does not form part of, this Annual Report. Our 2022 Sustainability Report is expected to be released during the second quarter of 2023.
Human Capital Management and Our Culture
The Company’s success is closely tied to the capability, adaptability and accountability of our diverse, global organization. One of the key components of our business strategy is the fostering of a collaborative and entrepreneurial management culture. Each of our general managers operates in a flat organizational structure and is incented to grow and develop their business, with the support of the resources of the larger organization. We believe this structure, with approximately 130 general managers running unique, independent businesses, creates an environment and culture where each of our general managers has a more direct link to the success of their individual businesses and a more personal connection to the employees they oversee and the communities in which they operate.
As of December 31, 2022, the Company had approximately 91,000 employees worldwide, of which approximately 11,000 were located in the United States. Less than 10% of Amphenol’s U.S. workforce is represented by an independent trade union or covered by collective bargaining. The Company believes that it has a good relationship with both its unionized and non-unionized employees.
Governance and Culture – Our Board is actively involved in overseeing the Company’s employee-related strategies and practices as well as the Company’s culture and ESG initiatives. This oversight is conducted both directly and through certain of the Board’s committees. At each of its regularly scheduled quarterly meetings, the Board reviews changes in key personnel and, at least once a year, meets with management to discuss various human resources related topics, including talent development, succession planning, diversity, equity and inclusion initiatives, compensation and culture. We believe the Company’s culture has been a critical component of the Company’s success and reinforcing that culture is a key responsibility of our executive management.
Diversity, Equity and Inclusion – Amphenol is committed to workplace diversity and fostering a culture of equity, inclusion and belonging across our organization. Our business spans the globe, and the employees in our facilities reflect the diversity of the communities in which we operate. At Amphenol, we promote and maintain a culture of respect and appreciation of differences in our employees. The Company generally relies on local management in every business unit to foster a culture of diversity, equity and inclusion, which we believe creates a strong degree of organizational stability and a deep commitment to our people and the local community. A key hallmark of our structure is our entrepreneurial culture that creates clear accountability for each of our general managers, who are our key business leaders. Our core management team is comprised of these general managers and their controllers, as well as our executive management team. Women represented 27% of this core management team at the end of 2022. Of our total employees worldwide, approximately half are women.
Health, Safety and Well-being – We believe that the protection of our employees is a moral obligation. In addition, the safety and well-being of our employees is critical to the successful operation of our business. Our health and safety activities are overseen by our corporate environmental, health, safety and sustainability leadership team and are managed by our local teams, who coordinate on-site safety programs, resources, reporting and training in our facilities. We believe that this model of coaching and tracking at the corporate level, but administering at the facility level, has allowed us to provide training and supervision that better fits the local needs of each of our workforces.
Compensation and Benefits – The Company is focused on providing our employees around the world equitable and competitive compensation and benefits. In the U.S., in addition to competitive compensation, the Company maintains various employee benefits such as health and related insurance, retirement savings programs and health savings and flexible spending accounts. Outside the U.S., we maintain compensation and other benefits competitive with local market conditions.
Community and Social Impact – Amphenol recognizes that we have a responsibility to be a positive influence in the communities in which we operate around the world. Most of our community outreach is organized by our local management teams, which helps ensure that our efforts are working in support of the local communities in which our employees live and work. Our local teams are actively supporting their communities in a variety of ways including: school supply drives, local blood drives, mentoring of at-risk students, community clean-up events, local tree planting, holiday-giving events and food delivery services. In 2022, a number of our operations in Europe supported refugees who were fleeing Ukraine following the Russian invasion.
Available Information
The SEC maintains a website that contains reports, proxy and information statements and other information regarding issuers, including Amphenol, that file with the SEC. Any such documents that the Company files with the SEC can be obtained by the public on the SEC’s website at http://www.sec.gov. This Annual Report and all of the Company’s other filings with the SEC, such as quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and any amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are also available to view, free of charge, on the Company’s website, www.amphenol.com, as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. Also included on the Company’s website are press releases and other information about the Company’s financial results and performance, and information regarding ESG matters, among other information. Copies of this Annual Report are also available without charge, from Amphenol Corporation, Investor Relations, 358 Hall Avenue, Wallingford, CT 06492. The information on our website is not incorporated by reference in this Annual Report.
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