TE Connectivity (TEL) Q4 2025: Industrial Segment Grows 34%, AI Revenue Triples to $900M
TE Connectivity capped fiscal 2025 with record sales, margin, and cash flow, propelled by a 34% surge in its industrial segment and tripling AI-related revenues to $900 million. Management is leaning into secular tailwinds in data infrastructure and energy, signaling confidence for double-digit growth into FY26. Investors should track evolving segment mix, margin expansion levers, and capital allocation as TE Connectivity rides hyperscale and grid investment booms.
Summary
- AI and Cloud Demand Accelerates: Industrial segment’s digital data networks revenue surged, with AI sales tripling and cloud revenue doubling year over year.
- Margin Expansion Outpaces Volume: Both major segments delivered 20%+ operating margins, with industrial margins up nearly 300 basis points.
- Capital Deployment Remains Aggressive: Over $2 billion returned to shareholders and $2.6 billion deployed on bolt-on acquisitions to reinforce growth engines.
Performance Analysis
TE Connectivity delivered record top-line and bottom-line results in fiscal 2025, driven by a potent mix of organic growth, bolt-on acquisitions, and robust execution in high-growth verticals. Full-year sales reached $17.3 billion, up 9% on a reported basis, with the industrial segment contributing the lion’s share of incremental growth. The company’s adjusted operating margin reached 20%, expanding 80 basis points year over year, while free cash flow exceeded $3 billion, reflecting over 100% conversion of net income—a strong indicator of underlying business quality.
Segment performance was notably uneven but strategically favorable. Industrial solutions grew 34% in Q4, with organic growth of 24%, led by digital data networks (DDN), which clocked 80% growth as AI and cloud infrastructure demand soared. Transportation, a mature segment, delivered stable 20% margins and modest growth, but regional dynamics—strength in Asia offset by Western softness—muted outperformance. Commercial transportation and sensors faced regional headwinds, but global auto content per vehicle continued to rise, especially as electrification and data connectivity proliferate.
- AI Revenue Tripling: AI-related sales grew from $300 million last year to $900 million, establishing a new baseline for future growth.
- Cash Generation as a Strategic Lever: Free cash flow of $3.2 billion fueled both shareholder returns and inorganic expansion.
- Order Momentum Across Segments: Orders rose 22% YoY, with industrial and transportation segments both seeing sequential and annual gains, underpinning FY26 guidance.
The overall financial narrative is one of high-quality growth, disciplined cost management, and a business model increasingly leveraged to secular infrastructure cycles.
Executive Commentary
"Our strong momentum is continuing, with quarterly and full-year records for sales, earnings, and free cash flow in what continues to be an uneven macro environment. We also continue to demonstrate the strategic positioning of our portfolio, benefiting from the secular growth trends in a number of our businesses."
Terrance Curtin, Chief Executive Officer
"We set records in sales, operating, adjusted operating margins, adjusted earnings per share, and free cash flow. Relative to our business model, we are delivering on our targets for sales growth, margin performance, EPS growth, and cash generation."
Heath Mitz, Chief Financial Officer
Strategic Positioning
1. Industrial Segment as Growth Engine
TE Connectivity’s industrial segment has become the company’s primary growth engine, fueled by secular demand for digital infrastructure and energy grid modernization. The DDN business, which supplies high-speed interconnects for hyperscale data centers, saw 80% growth in Q4 and over $900 million in AI-related revenue for the year. Energy also delivered 83% growth, supported by utility grid hardening and renewables investment, amplified by the Richards acquisition.
2. Transportation Navigates Regional Divergence
Transportation remains a scale foundation, but regional trends are diverging. Asia continues to drive content growth, particularly in electrified powertrain and data connectivity, while Western regions lag. TE’s localization strategy and design wins in data-heavy automotive platforms are offsetting production headwinds, but the segment’s margin expansion is now largely realized, with incremental gains tied to volume and content per vehicle.
3. Capital Allocation and M&A Discipline
Capital deployment is a core pillar of the value creation model. TE Connectivity returned $2.2 billion to shareholders and invested $2.6 billion in bolt-on acquisitions, focusing on businesses aligned with secular trends. Management signaled continued appetite for both organic and inorganic growth, with a flexible balance sheet enabling opportunistic moves across industrial verticals.
4. Margin Structure and Non-GAAP Evolution
Management is adjusting non-GAAP reporting to exclude intangible amortization, which will lift reported gross margin by approximately 100 basis points in FY26. This change is more reflective of cash profitability and aligns segment reporting with capital allocation priorities, especially given the acquisition-heavy industrial portfolio.
5. Technology Co-Design and Share Dynamics
TE’s competitive edge in AI and cloud is rooted in co-design partnerships with hyperscalers, enabling rapid ramp-up and sticky design wins. While the market remains concentrated among a few players, management is focused on technology inflections and operational agility to capture incremental share as the infrastructure cycle matures.
Key Considerations
TE Connectivity’s fiscal 2025 results spotlight a business pivoting toward high-growth, high-margin verticals, while maintaining operational discipline and capital flexibility. The strategic context is defined by:
Key Considerations:
- Secular Infrastructure Demand: AI, cloud, and grid modernization are driving multi-year order momentum, with DDN and energy segments leading organic growth.
- Segment Mix Shift: Industrial’s rising share of sales and profit is rebalancing the company’s portfolio away from traditional transportation cyclicality.
- Margin Upside from Scale: Volume leverage in industrial and operational efficiency are expanding margins, with further upside as new programs ramp.
- Capital Allocation Optionality: Robust cash flow supports a blend of shareholder returns and targeted M&A, maintaining strategic flexibility.
- Regional Variance in Transportation: Asia’s strength is offsetting Western softness, but content per vehicle gains remain a core lever for future outperformance.
Risks
Key risks include potential cooling in hyperscale and utility capex, regional auto production volatility, and integration challenges from ongoing M&A. Tariff pass-throughs can dilute margin, and the company’s pivot toward industrial verticals increases exposure to cyclical swings in infrastructure and energy investment. Investors should monitor for signs of AI demand normalization, competitive share shifts, and execution on acquired businesses.
Forward Outlook
For Q1 FY26, TE Connectivity guided to:
- Sales of $4.5 billion, up 17% YoY (11% organic)
- Adjusted EPS of $2.53, representing 23% YoY growth
For full-year FY26, management indicated:
- Double-digit organic growth in industrial, with continued AI and energy tailwinds
- Margin expansion as volume ramps and acquisition synergies are realized
Management highlighted several factors that will shape performance:
- Continued momentum in AI, cloud, and energy infrastructure
- Stabilization in transportation, with content per vehicle growth offsetting macro production plateaus
Takeaways
TE Connectivity’s FY25 results reinforce its transformation into a secular infrastructure growth play, with industrial and digital data networks now central to the investment case.
- AI and Cloud Ramp: DDN’s tripling AI revenue and doubling cloud revenue establish a new growth floor, with design wins and co-development partnerships cementing competitive positioning.
- Margin and Cash Flow Strength: Margin expansion and robust cash conversion create headroom for both organic and inorganic growth, while supporting shareholder returns.
- Future Watchpoint: Investors should focus on sustained order momentum, integration of recent acquisitions, and signals of normalization in hyperscale and grid demand as potential inflection points.
Conclusion
TE Connectivity enters FY26 with strong secular tailwinds, operational momentum, and a balanced approach to capital deployment. The pivot toward industrial and infrastructure markets is reshaping the company’s growth and margin profile, but execution on integration and continued demand strength are critical watchpoints for investors.
Industry Read-Through
TE Connectivity’s results highlight the accelerating capital cycle in digital infrastructure and grid modernization, with hyperscale and utility investment driving record order books across the sector. The company’s margin expansion and capital allocation discipline offer a template for peers navigating similar mix shifts. For suppliers to AI, cloud, and energy verticals, secular demand remains robust, but the pace of hyperscaler and utility spending will be a key barometer for sustainability. The evolving mix toward high-margin, high-growth businesses is likely to be echoed across the broader industrial technology landscape as end markets digitize and electrify.