The Untold Story of Amphenol: Part I

**Douglas Ott** (0:05)
Preferred Shares is a podcast started by three guys interested in business, history, and business history. We follow our interests and go down the rabbit holes of current and bygone topics. We'll talk about individual companies, product wars, famous founders, forgotten failures, and anything else that strikes our fancy. To find our episodes and show notes, please visit our website at preferredsharespodcast.com.
The hosts for the podcast are Devin LaSarre, Douglas Ott, and Lawrence Hamtil. Devin is a private investor with a background in design and brand development and is the author of the Invariant newsletter. Douglas is a founder and chief investment officer at Andvari Associates, a registered investment advisor. Lawrence is a co-founder and principal at Fortune Financial Advisors, also a registered advisor. All opinions expressed by the podcast hosts and guests are solely their own opinions and do not reflect the opinions of their respective employers. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Andvari and Fortune Financial may have positions in any of the securities discussed in this podcast.

**Devin LaSarre** (1:28)
Hello, welcome to episode 23 of the Preferred Shares Podcast. I'm Devin, and as always, I'm joined by Doug and Lawrence. Today, our topic is a company that is arguably one of the most important in the world. Much of how we all live our lives is completely reliant on this business. Yet, most people are unlikely to know what this company exactly does. Today, we're talking about Amphenol. This will be part one of a two-part series. In part two, we're going to be joined by Morningstar's William Kirwan, who's been covering the company at length for many years. I'm going to go ahead and pass it off to Lawrence to start the discussion.

**Lawrence Hamtil** (2:10)
Thanks, Devin. Amphenol is a very fascinating corporate history to break down. You can kind of argue that the history of Amphenol tracks very closely with the history or the evolution rather of digitization, electrification, electronics, all those kinds of things over the last 100 years or so. It's $120 billion market cap company with about $15 billion plus in revenues. Over its history, Amphenol has operated within several conglomerates, has been bought and sold multiple times, and has also been IPO-ed multiple times. You can see there's been a lot of corporate activity involved with the name, which I think puts it in kind of standalone company. I can't think of too many others that have had such a dynamic history with capital markets. For those who aren't familiar with Amphenol, what it does and what kind of function it plays and its various end markets, I'll share with you an anecdote which was given to me by a Twitter friend from Germany. I'll call him Willie to protect the innocent, so to speak.
He shares the story that in the 90s, he was working for a company that manufactured cables, and these cables were measured in kilometers. They could be used for military purposes or industrial purposes such as oil and gas, exploration, space, and semiconductors, and various other activities.
What these cables were doing was that they were being dragged in this specific use case along the ocean floor at tremendous depths, and they were looking for oil deposits. These cables, which again, keep in mind were measured in kilometers, they had to be connected by Amphenol connectors. Amphenol is a manufacturer of these high-end connectors. To give you some idea of the complexity involved, these cables and the connectors that keep them talking to each other, they have to be waterproof, pressure-proof, and yet also flexible enough to allow the cables to be retrieved and wound up on spools. And so that's kind of an interesting anecdote of what exactly the company does. It's not something that you interact with in your everyday life in this example, but of course, in its other end markets, you do interact with it when you're automobiles, your mobile devices, when you take a flight on a jet, and all these different kinds of things. And so Amphenol is involved in just about all of those things. And the history goes back to the 1920s, 1930s with the founder, Arthur J. Schmitt. He was a World War I veteran, and I believe he worked with communications at the time. And he was fascinated by radios, but he was also kind of just a tinkerer. For example, he designed and flew an airplane, and he also created and drove a propeller car, which was among the fastest for its time. So he was obviously a very interesting inventor type and a very dynamic individual. And like I said, he was interested with radios. And in 1932, in the depths of the Depression, he founded Amphenol, which stands for American Phenolic Corp. And this was in Chicago. And their first product was the patented molded radio socket. So if you don't know, phenolic is a kind of plastic or composite, which was not used in a lot of devices at the time. And it was sort of revolutionary to use this new material to connect the inner workings of a radio. And so very quickly, this caught on. And they had a couple of other new products, which were microphone connectors and a lock-in socket for radio tubes. And for those familiar with the radio revolution, RCA was kind of the elephant in the room at that time. And that was their largest customer. They wanted 10,000 of these sockets produced per day. Amphenol's capacity at the time was only 250 So Schmitt, true to form, figured out a way to reorganize production so that the demand could be met and meet RCA's expectations. And that was just kind of how he was. He wasn't going to be deterred by problems. He was always going to find a way to meet his customer's expectations. And that's a tradition that continues to this day. The next kind of chapter in Amphenol's history is World War II, which was true for most companies at that time. And you think about World War II, the airplanes were a little bit more advanced. They were flying at higher altitudes, a lot of extreme conditions at those altitudes. And so Amphenol was called upon to produce a lot of the connectors used by these airplanes. So if you think of a B-29 or a B-24 or B-17, you're manufacturing these giant airplanes and segments. And so something like the wing has to be reattached to the fuselage, and Amphenol's connectors made it possible for those things to be somewhat modular, and the wing could be dissected or taken apart from the airplane's fuselage and then reconnected without having to rewire the entire thing. So that's another example of it being a mission-critical component to a very serious business. And I mentioned the B-29. Those were flying at 30,000 feet. Well, they required as many as 1,600 connectors. So that just kind of shows you of how important and the overall project of one of these big airplanes the Amphenol connectors had to be. They also made just about all of the coaxial cables that the crew would use to connect to the intercoms and communicate with each other. During the war, sales went to about $39 million at its peak. But after the war ended and those military contracts dried up, they dropped to below $5 million. And so how did Amphenol deal with this? Well, they kind of pivoted to a couple of new things that were emerging in the post-war economy, which were telephony and consumer electronics. And a couple of their big products for those appliances were the blue ribbon connector for telecommunications and the antenna for television sets. You can go back and you can find some advertisements for those at the time. And it's kind of funny. They look sort of silly to us today, but at the time, they were sort of revolutionary as people were for the first time getting televisions into their everyday lives in their living rooms. 1957 marked the 25th anniversary of Amphenol. And the company went through an IPO at the time.