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Sensors, switches, perilous places are the job at TE Connectivity

TE Connectivity builds parts for hazardous environments - engines, battlefields, high altitudes, ocean floors, your guts. The multinational also has to manage the hazardous environment on Wall Street, where even very large industrial companies that can't show rising profits are taken over and dismembered.

Thomas Lynch, chief executive since the company was spun off by Tyco in 2006, will retire in the spring.
Thomas Lynch, chief executive since the company was spun off by Tyco in 2006, will retire in the spring.Read more( MICHAEL BRYANT / Staff Photographer )

TE Connectivity

builds parts for hazardous environments - engines, battlefields, high altitudes, ocean floors, your guts.

The multinational also has to manage the hazardous environment on Wall Street, where even very large industrial companies that can't show rising profits are taken over and dismembered.

At its glass-walled headquarters on a leafy hillside between Berwyn and Valley Forge, TE has been building models to shed light on the dark places that rely on the company's 500,000 types of connectors, sensors, and switches.

There's a full-size Plexiglas car model studded with hundreds of TE-built parts, showing where they fit in Mercedes engines and Tesla battery-control units. There are illustrations of aircraft, and people, and large and small devices, all studded with TE Connectivity parts and probes, designed to be at once cheap and reliable for the life of the machine.

With yearly sales of $12 billion and profits last year of $2.4 billion, TE Connectivity's 120 plants and 75,000 workers (including 7,000 engineers) are spread, like its customers, almost evenly across global companies' three great markets - the Americas, Asia, and Europe-Africa-Middle East.

Its U.S. factories include a string of central Pennsylvania works inherited from TE Connectivity's forerunner, AMP, which started making electrical connectors for the U.S. military in World War II.

Under Thomas Lynch, chief executive since it was spun off by Tyco International in 2006, TE Connectivity is the only publicly traded successor of Tyco. In the late 2000s, the former Princeton-based industrial conglomerate was broken into three companies by then-CEO Edward Breen, who did it again to boost shareholder profits above its stock price. Breen is now preparing a similar breakup of combined Dow Chemical Co. and DuPont Co. assets.

TE Connectivity shares rose faster than its peers during the economic recovery of 2010-14. But the stock "has been a frustrating call" lately, as billions of dollars spent on share buybacks failed to lift shares in the face of the slowing auto industry, Craig Hettenbach, stock analyst at Morgan Stanley, wrote in a report to clients after the company's recent analyst meeting.

Hettenbach is still recommending the stock, which he said is undervalued, given TE's lead in the growing China auto market, its willingness to cut costs and shut plants where demand is "lackluster," and its recent expansion in medical technology, including its $900 million acquisition of the Ireland-based device-maker Creganna earlier this year. He said investors hope the company will show "better discipline" in paying future acquisition premiums.

Lynch will retire in the spring. His successor, Terrence Curtin, is, like him, a former chief financial officer who also has operating-group and corporate-customer experience.

Curtin, like Lynch and Breen, grew up in suburban Philadelphia, which Lynch said is as convenient as anywhere to run a worldwide factory and customer network, and more pleasant than most.

To help boost visibility, TE Connectivity has been building its parts into Indy cars and, this year, a Formula E all-electronic racer. The number and value of sensors in the world's increasingly electric and electronic car fleets is growing a lot faster than auto sales generally, which keeps sales rising even when auto orders are off, Sujah Shah, head of investor relations, said in a meeting with stock analysts earlier this month at the Berwyn headquarters.

The average new car has $200 worth of electrical connectors, and TE provides $60 of that - more for high-end Mercedes and BMWs, and "several hundred dollars' worth" for high-end electric Teslas, he said.

TE also provides an average $1 to $2 worth of sensors per car - connectors that communicate with servers and other sensors so the driver doesn't have to act - and expects their value to double and double again in the years to come as cars get smarter.

TE engineers have lately been building assemblies of multiple parts to sell automakers, cutting down on the number of rival suppliers, streamlining automaker procurement. Self-driving cars will use a lot more sensors. "We're really at the very early stages," Shah said.

TE Connectivity owns a fleet of eight ships gone for months laying undersea cables. Recent clients include consortiums led by Microsoft, Facebook, and Google, in projects that cross the major oceans.

Curtin, named CFO when he was just 37, distinguished himself during the 2008-09 financial crisis, Lynch said.

"In a very difficult time, he kept a calm, steady hand on the wheel" as automotive orders, more than half the company's sales at the time, froze, Lynch recalled.

Curtin kept score as Lynch sold businesses like TE's wireless-broadband equipment unit, unloaded to CommScope Holding Co. last year for $3 billion. "We had a lot of cats and dogs," Lynch said. "We sold $6 billion worth" of lower-yield businesses, "we bought $6 billion" of new "harsh-environment" product businesses, and spent billions more in share buybacks and dividends.

There are deals ahead, but "a huge amount of the heavy lifting has been done," new chief financial officer Heath Mitts told the analysts.

He said he's not worried the Trump administration will crimp the foreign trade that TE and other big manufacturers rely on.

"These are popular issues to campaign around. But the history of trade is pretty positive," said Lynch. Grandson of a Jones & Laughlin steelworker, he knows factory closings have wrecked U.S. cities and towns.

Workers who resist trade pacts "are right to battle and get the best they can. We all have a responsibility to smooth" trade losses, and make clear the benefits of low-priced imports, he said.

JoeD@phillynews.com

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