Yesterday, I highlighted the severe supply shortage in electronic chips, particularly in the automobile industry.
But that’s just a window into how electrified the world has become.
This trend has reached into every aspect of our lives. From the phones in our pockets to the cars we drive, we rely more and more on intricate electronics in both their function and how they are made.
The days of carbon-belching factories are seeing the beginning of the end. Now, electronically-powered robotics and automation have claimed prominence in most industries.
Demand for the chips that allow this computerization and electrification to work has put pressure on those semiconductor companies. But chips aren’t the only piece of the puzzle.
In fact, it takes hundreds and thousands of little specialty connectors and sensors to power the modern industrial world.
And what Taiwan Semiconductor Mfg Co. (NYSE: TSM) is to chips, TE Connectivity Ltd. (NYSE: TEL) is to these connectors.
If you haven’t heard of TE Connectivity, I don’t blame you. It isn’t a flashy company with products you or I might recognize.
But at $40 billion, it is a major spoke in the wheel that powers the world.
Its sensors, tubes, connectors and components can be found in nearly every car on the road, for instance.
Whether you drive a gas-guzzler or an electronic vehicle, you likely have $60 worth of TE’s products powering it.
That number is only going up, in fact.
Nearly every part of automobiles these days runs through a computer. Each of those systems, from its dashboard gauges to its air conditioner relies on connections to the main computer. TE’s products make that connection.
The switch to EV is only going to increase the amount of electronic hardware found in each vehicle.
The company expects about $70 of its products will make it into each car this year. And that number will continue to climb.
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But vehicles only make up about two-thirds of the company’s sales.
It has its hands in everything. And with vaccines coming out, the world set for recovery and new tech industries completely taking over, TE is already racking it in.
TE Connectivity reported its first quarter of earnings this morning.
Sales jumped 11.2%. Earnings grew 21.5%. And that’s during a quarter where coronavirus cases were peaking to their highest all year.
That’s a stunning performance for a company so reliant on global manufacturing. But it still isn’t as much as you can expect going forward.
You see, medical components are among its most important SKUs. With the huge dip in elective medical procedures in 2020, that department hit a major roadblock.
Analysts and investors alike are not giving this enough credit. As the vaccines start opening up the rest of the medical industry, TE will be among the first to see a boom in sales.
You may have already noticed a theme developing this year.
In 2020, every great profit seemed to come from exciting new technologies: video conferencing, AI-run insurance, etc.
2021 is already shaping up to be a year where the less sexy side of technology cleans up.
Making the next generation of vehicles might sound more exciting. But the maker of the little connectors and sensors is where the real money will be over the next several months.
To your prosperity and health,
Joshua M. Belanger