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Item 1. Business

2021-02-12 compared with 2020-02-11 · 236 added, 113 removed, 129 unchanged (73% of the section changed)

The reporting company is Sensata Technologies Holding plc ("Sensata plc"), a public limited company incorporated under the laws of England and Wales, and its wholly-owned subsidiaries, collectively referred to as the "Company," "Sensata," "we," "our," and "us."

We are a global industrial technology company that develops, manufactures, and sells sensors, sensor-based solutions, controls, and other products used in mission-critical systems and applications that create valuable business insights for our customers and end users.

The reporting company is Sensata Technologies Holding plc, a public limited company incorporated under the laws of England and Wales, and its wholly-owned subsidiaries, collectively referred to as the "Company," "Sensata," "we," "our," and "us."

We are a global industrial technology company that develops, manufactures, and sells sensors, electrical protection products, and other products that are used in mission-critical systems and applications that create valuable business insights for our customers and end users.

For more than 100 years, we have been providing a wide range of customized, sensor-rich solutions that address increasingly complex engineering and operating performance requirements to help our customers solve their most difficult challenges in the automotive, heavy vehicle and off-road ("HVOR"), industrial, and aerospace industries.

Our sensors are devices that translate a physical parameter, such as pressure, temperature, or position, into electronic signals that our customers’ products and solutions can act upon.

These actionable insights lead to products that are safer, cleaner and more efficient, more electrified, and increasingly more connected.

Our sensor-based solutions can be comprised of various sensors, controllers, receivers, and software, which provide comprehensive solutions to critical problems.

Our controls are devices embedded within systems to protect them from excessive heat or current.

Our sensors, sensor-based solutions, and controls are included in mission-critical solutions that play a key role in the four key megatrends that are shaping our markets:

Clean & Efficient - our customers are facing ever increasing mandates to make their products cleaner and more efficient due to regulation and consumer demand.

Our sensors are being used in mission-critical systems and applications including those that help:

We operate in, and report financial information for, two reportable segments:

Performance Sensing and Sensing Solutions.

Original equipment manufacturers ("OEMs") are producing products that are safer, cleaner, more efficient, more electrified, and increasingly more connected.

Our sensors are used by our customers to translate a physical parameter, such as pressure, temperature, position, or location of an object, into electronic signals that our customers’ products and solutions can act upon.

Our electrical protection product portfolio is comprised of various sensors, controllers, receivers, and software, and includes high-voltage contactors and other products embedded within systems to maximize their efficiency and protect them from excessive heat or current.

We have long-standing relationships with a geographically diverse base of leading OEMs and other multinational companies.

In geographic and product markets where we lack established relationships with customers, we rely on third-party distributors to sell our products.

We have had relationships with our top ten customers for an average of 31 years.

Our largest customer accounted for approximately 7% of our net revenue for the year ended December 31, 2020.

Business Strategy

Our business strategy involves leveraging certain new and emerging technology trends, which complement our existing product offerings, to deliver products used in mission-critical systems and applications that create valuable business insights for our customers and end users.

Each of these trends, which we refer to as “megatrends,” is expected to significantly transform the industries in which we operate.

Refer to Megatrends section for additional detailed information on the new and emerging technologies that we consider key to our strategies.

These megatrends are also creating greater secular demand for our products, resulting in growth that exceeds end-market production growth in many of the markets we serve, a defining characteristic of our company.

We refer to this as “market

outgrowth,” which describes the impact of an increasing quantity and value of our products used in customer systems and applications, and is only loosely correlated to normal unit demand fluctuations in the markets we serve.

Our customers are facing ever increasing mandates, due to regulation and consumer demand, to make their products cleaner, more efficient, and safer, while providing more comfort-related features.

Our sensors are being used in mission-critical systems and applications that are addressing these demands, including those that help:

industrial customers to make more efficient pumps and boilers;

automotive customers to meet the standards of emissions and pollution control legislation;

and fleet managers to increase the fuel efficiency of heavy duty trucks.

Electrification - electrification provides a significant opportunity for us to expand the use of our sensors and electrical protection solutions within the automotive, industrial, and HVOR industries.

For example, in the automotive industry as customers seek to extend the range of the battery and improve the efficiency of electric vehicles they are incorporating electrical subsystems, which require additional sensors to monitor, control, and optimize what is happening within the vehicle.

and fleet managers to proactively monitor the health of their vehicles, conduct proactive maintenance, optimize fleet operations, and enhance driver safety.

We consider these capabilities to be core to our historical success, and will continue to be significant drivers of outgrowth in the future.

We believe the medium- to long-term outlook for internal combustion engine powertrain products will evolve with the advent of more environmentally friendly vehicles that rely more heavily on Electrification (as defined in the Megatrends section below) and other adjacent technologies.

Accordingly, we are focusing on expanding our market share on electrified platforms, including both sensor and electrical protection products.

Many of the components and subsystems that we have historically developed and produced will play a significant role in this expansion, but we will also seek strategic partnerships and acquisitions to accelerate the growth and transformation of our product portfolio.

By entering into such relationships, we obtain access to new technologies and solutions, which we can leverage with our existing expertise to optimize and expand our product portfolio.

Beyond Electrification, we also recognize the potential market impact of autonomous vehicles and advanced driver-assistance systems ("ADAS"), and are developing sensors to facilitate development of this market by manufacturers of vehicles (light passenger, heavy on and off-road) and material handling equipment.

In addition, in our HVOR business, we are working on integrating our current products with software and services, as well as data collection, analysis, and insight capabilities, that will provide a large opportunity across the market segment.

We also believe that adoption of driver assistance technologies, like radar, is a growth area – whether mandated by government legislation (such as the pedestrian safety requirements in the European Union ("EU")) or adopted by OEMs ahead of regulations.

We are also seeking to expand our business and accelerate market share in other areas that we believe will experience high growth in the future, such as deployment of Internet of Things (“IoT”) solutions for buildings, factories and warehouses.

This is driven by the need for smarter and more connected sensors that collect, analyze, and provide insights into how a particular industrial environment is operating and ultimately make that environment more productive and efficient.

We also believe that the industrial markets will see higher adoption of autonomous technologies to enhance productivity resulting in higher demand for our radar solutions.

New and emerging technology trends that are expected to significantly impact our customers and our business strategy include Electrification, Smart & Connected, and Industrial IoT.

Electrification

Our objective with the Electrification initiative is to become a leading and foundational player in solutions that will support a future that is more environmentally-sustainable and efficient, including (1) clean energy transportation systems and components in electrified vehicles, charging stations, and chargers and (2) mission-critical high voltage components and subsystems with high value solutions in advanced smart grid technologies.

Electrification provides a significant opportunity for us to expand the use of our sensors and electrical protection products within the automotive, industrial, and HVOR industries.

For example, in the automotive industry, as customers seek to extend the range of batteries and improve the efficiency of electric vehicles, they are incorporating electrical subsystems, which require additional sensors to monitor, control, and optimize what is happening within the vehicle.

Further, higher voltage battery systems are also driving increased needs for electrical protection.

Sensors are also used in thermal management applications to help maintain batteries at optimal temperatures as well as electric motors and heat pumps.

Smart & Connected - we are developing smart, connected sensors that enable actionable insights for commercial vehicle operators.

For example, our wireless sensors can collect information through a vehicle-area network and allow fleet managers to proactively monitor the health of their vehicles and conduct proactive maintenance, such as being able to identify when a tire is at high risk of bursting.

Our leadership position in wireless sensing allows us to access new data sources that have historically been costly and difficult to gather using traditional wire harnesses.

Autonomy - we are developing sensors to enable light passenger cars, off-road vehicles, and material handling equipment to operate more autonomously.

For example, we have recently launched a steer-by-wire application to enable worksite automation in the construction and agriculture industries.

Within automotive, we are also developing a portfolio of sensors to actively monitor the health of a vehicle when it is not being operated by an active driver.

Each of these trends is expected to significantly transform our industries and many of our customers businesses.

These megatrends are also creating greater secular demand for our products, resulting in content growth that enables us to outgrow end-market volume production in many of the markets we serve, a defining characteristic of our company.

Content growth is a term that we use to describe the impact of an increasing quantity and value of our products used in customer systems and applications, and to a large extent independent of normal demand fluctuations in the markets we serve.

Content growth of our sensor products results from technological advancements and enhancements in a customer’s system or application, where our sensor is an integral component, to help comply with evolving and tightening regulations, meet changing performance standards, and enable new and emerging technologies that together, or in part, provide cleaner, more efficient, safer, and more comfortable functionality.

We have long-standing relationships with a geographically diverse base of leading original equipment manufacturers ("OEMs") and other multinational companies.

In geographic and product markets where we lack an established base of customers, we rely on third-party distributors to sell our products.

Only a small portion of our revenues are sold through distributors.

We have had relationships with our top ten customers for an average of 30 years.

Our largest customer accounted for approximately 7% of our net revenue for the year ended December 31, 2019 .

We operate in, and report financial information for, the following two segments:

Performance Sensing and Sensing Solutions.

We are expanding our capabilities in Electrification, including through third party collaboration, and expect continued material expansion of this initiative within our automotive, HVOR, and industrial businesses.

Smart & Connected

Our objective with the Smart & Connected initiative is to become the leader in delivering diagnostic insight and prognostics to fleet operators and owners.

Smart & Connected provides a large market opportunity across heavy, medium, and light vehicles.

Leveraging certain of the sensor products and embedded and wireless systems expertise in our existing tire

pressure monitoring portfolio, we are developing smart, connected, modular, and full-stack solutions that collect data from wireless sensors or related vehicle system information through a connected vehicle-area network and deliver actionable insight to drivers, maintenance workers and back-office personnel through mobile applications, web portals and via cloud Application Programming Interfaces ("APIs") for integration in other enterprise systems.

These solutions allow fleet managers to proactively monitor the health of their vehicles, conduct proactive maintenance, optimize fleet operations and enhance driver safety.

We are leveraging our leadership position in tire pressure monitoring systems and know-how of vehicles and use cases within fleet operations to deliver scalable platforms to a variety of players within the connected ecosystem, including Tier 1 suppliers, OEMs, telematics services providers and fleets directly.

Industrial IoT

Our objective in the Industrial IoT/Digitization of Factories & Warehouses initiative is to become a leader in factory smart sensing and edge intelligence with solutions in machine health and materials tracking.

The digitization of factories and warehouses represent fast-growing opportunities that we believe will drive new business wins and market outgrowth for our industrial business.

Bringing our products to enhance material handling and electrification charging infrastructure represent fast growing opportunities that we believe will drive industrial business content and market outgrowth.

Performance Sensing

Performance Sensing, which accounted for approximately 74% of our net revenue in fiscal year 2019 , primarily serves the automotive and HVOR industries through development and manufacture of sensors, high-voltage contactors, and other products used in mission-critical systems and applications such as those in subsystems of automobiles, on-road trucks, and off-road equipment (e.g., tire pressure monitoring, thermal management, air conditioning, and regenerative braking).

Our products are used in subsystems that, among other things, improve operating performance and efficiency as well as address environmental or safety concerns.

Our customers include leading global automotive, on-road truck, construction, and agriculture OEMs, the companies that supply parts directly to OEMs, which are known as Tier 1 suppliers, and various aftermarket distributors.

We believe large OEMs and other multinational companies are increasingly demanding a global presence to supply sensors and sensor-based solutions for their key global platforms.

We believe that we are one of the largest suppliers of sensors and sensor-based solutions in the majority of the key markets in which we compete.

The Performance Sensing reportable segment has historically also been an operating segment.

As discussed further in Note 20, “Segment Reporting,” of our audited consolidated financial statements and accompanying notes thereto (our "Financial Statements") included elsewhere in this Annual Report on Form 10-K (this "Report"), in the fourth quarter of 2020, we determined, based on various factors, that the Performance Sensing operating segment should be divided into two operating segments, Automotive and HVOR.

The Automotive and HVOR operating segments meet the criteria for aggregation into the Performance Sensing reportable segment, and no change was made to the overall components of, or the business conducted by, the Performance Sensing reportable segment.

Accordingly, no prior period information has been recast.

Performance Sensing, which accounted for approximately 73% of our net revenue in fiscal year 2020, primarily serves the automotive and HVOR industries through development and manufacture of sensors, high-voltage contactors, and other solutions used in mission-critical systems and applications such as those in subsystems of automobiles, on-road trucks, and off-road equipment (e.g., tire pressure monitoring, thermal management, electrical protection, regenerative braking, powertrain (engine/transmission), and exhaust management).

Our products are used in subsystems that, among other things, improve operating performance and efficiency, as well as contribute to environmentally sustainable and safe solutions as the world continues to pivot in those directions.

Our customers include leading global automotive, on-road truck, construction, and agriculture OEMs, the companies that supply parts directly to these OEMs, which are known as Tier 1 suppliers, and various aftermarket distributors.

We believe large OEMs and other multinational companies are increasingly demanding a global presence to supply sensors and electrical protection products for their key platforms worldwide.

As our customers develop common global electrified platforms to drive scale and efficiency across their global markets, we are well positioned to serve them with our global manufacturing and technical centers.

We provide our customers with the worldwide technical and manufacturing presence to enable their success around the globe.

The global sensor market is characterized by a broad range of products and applications across a diverse set of market segments.

According to an October 2019 report prepared by Strategy Analytics, Inc., the global automotive sensor market was $24.1 billion in 2019 , compared to $23.9 billion in 2018 .

Automotive and HVOR sensors support a wide variety of systems and applications, and many are critical components that are essential to the proper functioning of the products in which they are incorporated.

Sensor application-specific products require close engineering collaboration between the sensor supplier and the OEM or their Tier 1 suppliers.

According to an October 2020 report prepared by Strategy Analytics, Inc., the global automotive sensor market was $20.3 billion in 2020, compared to $23.7 billion in 2019 as a result of the global economic impacts caused by the coronavirus ("COVID-19") pandemic.

As the markets we serve continue to drive improved safety, efficiency, and performance we are well positioned to grow in this expanding market opportunity.

Our automotive solutions are present in a wide variety of automotive systems and subsystems playing a critical role in ensuring the functionality and safety of the vehicle’s operation.

Within the combustion and electrified propulsion architecture we provide various sensor solutions (i.e.

electric motor position, gasoline direct injection, oil pressure monitoring, fuel delivery, and various others) that enable superior functionality, efficiency, and optimized performance to reduce environmental impact.

Further protecting the environment are our exhaust after-treatment devices used in closed-loop feedback control to reduce emissions of traditional and hybrid powertrains.

Our chassis (i.e.

tire pressure monitoring systems), thermal management, electrical protection (i.e.

high voltage contactors), and safety (i.e.

braking and electronic stability control)

sensor/product solutions all play critical roles in enabling the safety, improved performance, and increased efficiency and range of electrified vehicles and combustion powertrains.

Applications we serve require close engineering collaboration between us and the OEM or their Tier 1 suppliers.

Solutions are designed to meet application-specific requirements with customer specific fit, form, and function.

As a result, OEMs and Tier 1 suppliers make significant investments in selecting, integrating, and testing sensors as part of their product development.

Switching to a different sensor results in considerable additional work, both in terms of sensor customization and platform/product retesting and certification.

This results in high switching costs for automotive and HVOR manufacturers once a sensor is designed in to a particular product or platform.

Once our solutions are designed into an application, we are well positioned as the incumbent supplier for the application due to the high degree of sensor customization and application/vehicle platform certification.

This results in high switching costs for automotive and HVOR manufacturers once a sensor is designed into a particular system or platform.

We believe this is one of the reasons that sensors are rarely changed during a platform life-cycle, which in the case of the automotive industry typically lasts five to seven years.

Given the importance of reliability and the fact that the sensors must be supported through the length of a product life, our experience has been that OEMs and Tier 1 suppliers tend to work with suppliers that have a long track record of quality and on-time delivery and the scale and resources to meet their needs as the automobile platform evolves and grows.

In addition, the automotive industry provides one of the largest markets for sensors, giving participants with a presence in this market significant scale advantages over those participating only in smaller, more niche industrial and medical markets.

OEMs and Tier 1 suppliers look to partner with suppliers that have a proven track record of quality, on-time delivery, and performance, as well as the engineering and manufacturing scale/resources to meet their needs over the multi-year lifecycle of these highly engineered vehicles and systems.

As electrified and autonomous automobile platforms continue to evolve and grow, we expect OEM and Tier 1 suppliers to require sensing partners that can continue to meet their increasing needs for mission-critical sensors and solutions enabling their global vehicle strategies.

We continue to drive investments in new technologies, competencies, and solutions that will enable our customers' success as they pivot toward an electrified world.

The automotive industry provides one of the largest markets for sensors, giving participants with a presence in this market significant scale advantages over those participating only in smaller, more niche industrial and medical markets.

Market Trends

Net revenue growth from the automotive and HVOR sensor markets served by Performance Sensing has historically been driven, we believe, by three principal trends, including (1) growth in the number of vehicles produced globally, (2) expansion in the number and type of sensors per vehicle, and (3) efforts toward commercializing higher value sensors.

However, we believe that the automotive and HVOR sensor markets are and will continue to be substantially impacted by current megatrends, primarily Clean & Efficient and Electrification in the near-term.

We are investing in existing and new technologies intended to respond to these megatrends and which we believe will drive future revenue growth.

In addition, our presence in emerging markets positions us to take advantage of future growth opportunities in these regions.

In addition, we believe that the automotive and HVOR sensor markets are and will continue to be substantially impacted in the near term by current megatrends, primarily Electrification, as well as other trends such as connectivity and ADAS.

Light vehicle production:

From the recession in 2008 and 2009 until recently, global production of light vehicles had consistently demonstrated annual growth.

However, according to the fourth quarter 2019 LMC Automotive "Global Car & Truck Forecast," the production of global light vehicles in fiscal year 2019 decreased from the prior year by 5.0% to approximately 89.4 million units.

Despite this decline, we expect global production of light vehicles to increase over the long term due to population growth and increased usage of cars in emerging markets.

Global production of light vehicles had consistently demonstrated steady annual growth for most of the decade prior to 2019, when it started to plateau.

This was demonstrated at the time by the fourth quarter 2019 LMC Automotive "Global Car & Truck Forecast," which showed that the global production of light vehicles in fiscal year 2019 decreased from the prior year by 5.0%.

In fiscal year 2020, production was significantly lower according to the fourth quarter 2020 LMC Automotive "Global Car & Truck Forecast," which showed that the global production of light vehicles in fiscal year 2020 further decreased from the prior year by 16.2% to approximately 74.9 million units.

We expect global production of light vehicles to see a strong rebound in fiscal year 2021, although not yet back to the level of 2019 production.

This increasing trend in light vehicle production is expected to continue beyond 2021 due to population growth and increased usage of cars in emerging markets.

Current estimates anticipate global production of light vehicles to approach 100 million units by fiscal year 2028.

On Road Truck Production :

Global production of heavy-duty trucks has also demonstrated consistent growth prior to 2019.

In fiscal year 2020, global production was approximately 5% lower than fiscal year 2019 according to industry data.

We expect production of trucks to improve in North America and Europe in fiscal year 2021.

This increasing trend in truck production is expected to continue beyond 2021 due to increased freight loads globally.

Number of sensors per vehicle:

We believe that sensor usage and content growth will continue to be driven by increasing installation in vehicles of emissions, efficiency, safety, and comfort-related control systems that depend on sensors for proper functioning, such as electronic stability control, tire pressure monitoring, advanced driver assistance, transmission, and advanced combustion and exhaust after-treatment, as well as user interfaces in HVOR applications.

For example, government

regulation of emissions, including fuel economy standards such as the National Highway Traffic Safety Administration's Corporate Average Fuel Economy requirements in the United States (the "U.S.") and emissions requirements such as "Euro 6d" in Europe, "China National 6" in China, and "Bharat Stage VI" in India drive cleaner, more efficient systems.

Other applications that are driving increased sensor content in vehicles include braking systems and electrification systems.

Braking systems are gradually transitioning from traditional hydraulic brakes towards electromechanical braking and regenerative braking systems, thus driving more content in pressure and force sensing.

Furthermore, electrified vehicles are driving more sophisticated thermal management systems to control heating and cooling throughout the vehicle, and more content in battery management systems to optimize drive range and safety in electrical protection as battery voltages increase.

Our fiscal year 2018 acquisition of GIGAVAC supports growth in this electrical protection domain with its contactor and fuse technologies.

We believe that the numbers of sensors used per vehicle will continue to be driven by increasing requirements in vehicle emissions, efficiency, safety, and comfort-related control systems that depend on sensors for proper functioning, such as electronic stability control, tire pressure monitoring, advanced driver assistance, and advanced combustion and exhaust after-treatment applications.

For example, government regulation of emissions, including fuel economy standards such as the National Highway Traffic Safety Administration's Corporate Average Fuel Economy requirements in the United States (the "U.S.") and emissions requirements such as "Euro 6d" in Europe, "China National 6" in China, and "Bharat Stage VI" in India require advanced sensors to achieve these performance metrics.

Sensors are a key enabler for a vehicle’s systems and sub-systems to meet the ever-increasing requirements in a vehicle’s operation.

Increasing safety requirements and needs for electrification are also key trends driving increased sensor content in vehicles.

These trends are driving advanced braking systems as they transition from traditional hydraulic brakes towards electromechanical braking and regenerative braking systems, thus driving additional content in pressure and force sensing.

Furthermore, electrified vehicles are driving more sophisticated thermal management systems to control heating and cooling systems throughout the vehicle, and additional content in battery management systems to optimize drive range and safety in electrical protection as battery voltages increase.

Higher value sensors:

We believe that our revenue growth has been augmented by a continuing shift away from legacy electromechanical sensors to more sensor-based solutions that include controllers, receivers, and software, and will continue to grow as our sensors and controllers get "smarter" with more embedded algorithms.

We believe that our revenue growth has been augmented by a continuing shift away from legacy sensors to more solid-state sensors and related solutions that include controllers, receivers, and software, and will continue to grow as our sensors get "smarter" with more embedded algorithms.

As we strive to increase the value we bring to the market and our customers, we are continuously looking to drive increased data-based insights that are derived from our foundational sensing solutions.

Our ability to provide our customer with insights into the systems/sub-systems we serve increases the value of our offering and enables improved performance, safety, efficiency, and environmental impacts.

Our focus on delivering enhanced value through our solutions to the market positions us to drive profitable revenue growth as the market demands continue to evolve.

New Technology:

Automobiles and heavy vehicles continue to evolve with new alternative technologies being developed to make these vehicles more efficient, robust, cost effective, and safe.

We believe that this trend has the potential to drive growth in our business for the foreseeable future, particularly in the areas of Electrification, Smart & Connected, and Autonomy.

Automobiles and heavy vehicles continue to evolve with new alternative technologies being developed to make these vehicles more efficient, reliable, financially viable, and safe.

We believe that this trend has the potential to drive growth in our business for the foreseeable future, particularly in the areas of Electrification, Smart & Connected, ADAS, and autonomy.

Moreover, we believe our broad customer base, global diversification, and evolving portfolio provide the foundation that will allow us to grow with these megatrends across a diverse set of markets.

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Also, sensor content on vehicle climate control and thermal management systems, where our market share is high, is increasing.

This is driven by the need for high efficiency control of thermal management in hybrid heating and cooling systems.

Additionally, as long-range plug-in hybrid and full battery electric vehicles gain market share, multiple instances of efficient thermal management across the battery, electronics, and cabin systems are required to protect and manage the vehicle, which drives additional core Sensata sensor and sensor-based solution content available in the market today.

Other new emerging opportunities to improve battery life could also provide the potential for additional content per vehicle.

Other safety and efficiency systems are also evolving on hybrid and electric vehicles.

This is driven by the need for high efficiency control of thermal management in battery electric vehicle heating and cooling systems as vehicle manufacturers look to drive increased vehicle range where the thermal loads on the vehicle become critical to manage.

As long-range plug-in hybrid and full battery electric vehicles gain market share, multiple instances of efficient thermal management across the battery, electronics, and cabin systems are required to protect and manage the vehicle, which drives additional core Sensata sensor and electrical protection content available in the market today.

Safety and efficiency systems are also evolving on hybrid and electric vehicles.

New and emerging energy recuperation technologies, such as regenerative motors, require additional sensing content to manage and efficiently switch between traditional braking systems and regenerative braking.

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Each of these systems enable more efficient use of energy, enabling greater electric vehicle range.

New content in high voltage electrical protection and sensor-based solutions from our fiscal year 2018 acquisition of GIGAVAC, LLC addresses many of the needs in evolving electric vehicle powertrain systems with higher voltage systems that must be properly controlled and protected as vehicle voltages and electrical currents increase.

New content in high voltage electrical protection from our fiscal year 2018 acquisition of GIGAVAC, LLC ("GIGAVAC") addresses many of the needs in evolving electric vehicle powertrain systems with higher voltage systems that must be properly controlled and protected as vehicle voltages and electrical currents increase.

This protection safeguards the expensive electronics used to power the vehicle and allowing for an increase in power levels to improve charging times.

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With sustained vehicle modernization and tightening regulations in China, we expect our content per vehicle in China will continue to increase, moving towards the levels we see in developed markets.

In addition to China, we are well positioned to grow in the next wave of emerging markets, such as India, where we will be able to serve the market needs with our vast global sensing solution portfolio and technical/manufacturing capabilities.

Product Categories

The following table presents the key products, solutions, applications, systems, and end markets related to the sensor product category:

Key Products/Solutions

Key Applications/Systems

Key End Markets

The following table presents the key products, solutions, applications, systems, and end markets related to the product categories in Performance Sensing:

Key Products/Solutions Key Applications/Systems Key End Markets

Product category:

Pressure sensors

Microfused strain gage

Ceramic capacitive

Micro-electromechanical

Speed and position sensors

Magnetic speed and position sensors

Mechanical/electrical control systems

High temperature sensors

Thermal management and air conditioning systems

Fuel delivery

Tire pressure monitoring

High temperature sensors Thermal management and air conditioning systems

Exhaust after-treatment

Tire pressure monitoring

Operator controls

Radar solutions

Product category:

Electrical protection

High-voltage contactors

Battery management system

Electrical protection

Electrical powertrain

Battery management Automotive

The table below sets forth the amount of net revenue generated by our sensor product category in Performance Sensing, reconciled to total segment net revenue, for the years ended December 31, 2020, 2019, and 2018:

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(In thousands) 2020 2019 2018

Sensors $ 2,171,364 $ 2,489,644 $ 2,532,631

Electrical protection (1)

35,366 41,273 7,423

17,080 15,099 87,597

Performance Sensing net revenue $ 2,223,810 $ 2,546,016 $ 2,627,651

________________________

(1) Beginning in the year ended December 31, 2020, we adjusted our product categories to better reflect how we view our products.

The product category we previously referred to as "controls" was renamed to "electrical protection," and our GIGAVAC products, which were previously grouped in "other," have been recast into "electrical protection." The amount of Performance Sensing revenue recast from "other" to "electrical protection" in the years ended December 31, 2019 and 2018 was $41.3 million and $7.4 million, respectively.

The "sensors" product category was unchanged.

Within each of the principal product categories in Performance Sensing, we compete with a variety of independent suppliers.

We believe that the key competitive factors in the markets served by this segment are product performance in mission-critical operating environments, quality, reliability, and commercial competitiveness.

We believe that the key competitive factors in the markets served by this segment are product performance in mission-critical operating environments, quality, service, reliability, manufacturing footprint, and commercial competitiveness.

We believe that our ability to design and produce customized solutions globally, breadth and scale of product offerings, technical expertise and development capability, product service and responsiveness, and a commercially competitive offering, make us well positioned to succeed in these markets.

We are experts in the applications we serve, enabling us to provide industry leading solutions to our customers.

We take great pride in our ability to be a strategic partner for our customers as we head toward an electrified future where clean energy, safety, and efficiency are of the utmost importance.

Sensing Solutions

Sensing Solutions, which accounted for approximately 26% of our net revenue in fiscal year 2019 , primarily serves the industrial and aerospace industries through development and manufacture of a broad portfolio of application-specific sensor and control products used in the aerospace market and a diverse range of industrial markets, including the small appliance, heating, ventilation and air conditioning ("HVAC"), semiconductor, material handling, factory automation, and water management markets.

Some of the products the segment sells include pressure, temperature, and position sensors, motor and compressor protectors, solid state relays, bimetal electromechanical controls, thermal and magnetic-hydraulic circuit breakers, power inverters, and charge controllers.

We believe that we are one of the largest suppliers of controls in the majority of the key applications and systems in which we compete.

Our customers include a wide range of industrial and commercial manufacturers and suppliers across multiple end markets, primarily OEMs in the climate control, appliance, semiconductor, medical, energy and infrastructure, data/telecom, material handling, factory automation, and aerospace industries, as well as Tier 1 aerospace and motor and compressor suppliers.

Sensing Solutions, which accounted for approximately 27% of our net revenue in fiscal year 2020, primarily serves the industrial and aerospace industries through development and manufacture of a broad portfolio of application-specific sensor and electrical protection products used in a diverse range of industrial markets, including the appliance, heating, ventilation and air conditioning ("HVAC"), semiconductor, material handling, factory automation, and water management markets, as well as the aerospace market.

Some of the products the segment sells include pressure and position sensors, motor and compressor protectors, high-voltage contactors, solid state relays, bimetal electromechanical controls, thermal and magnetic-hydraulic circuit breakers, power inverters, charge controllers, and IoT solutions.

Our products perform many functions including prevention of damage from excess heat or electrical current, optimization of system performance, low-power circuit control, and power conversion from direct current ("DC") power to alternating current ("AC") power.

Demand for our products is driven by many of the same factors as in the automotive and HVOR sensor markets:

We believe that we are a leading supplier of electrical protection products in the majority of the key applications and systems in which we compete.

Demand for our sensor products is driven by many of the same factors as in the automotive and HVOR sensor markets:

regulation of emissions, greater energy efficiency, and safety, as well as consumer demand for new features.

Gross Domestic Product ("GDP") growth is a broad indicator for demand for our consolidated industrial markets over the long term.

We use Purchasing Managers' Index ("PMI") to gauge short-term trends in the markets we serve.

We continue to focus our efforts on expanding our presence in all global geographies, both emerging and developed and serving our global customers in a highly efficient and cost-effective manner.

Our customers include established multinationals as well as local producers in emerging markets such as China, India, Eastern Europe, and Turkey.

Our customers include established multinationals

as well as local producers in emerging markets such as China, India, Eastern Europe, and Turkey.

China continues to remain a priority for us because of its export focus and the increasing domestic consumption of products that use our devices.

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The following table presents the significant product categories offered by Sensing Solutions and the corresponding key products, solutions, applications, systems, and end markets:

Key Products/Solutions

Key Applications/Systems

Key End Markets

Key Products/Solutions Key Applications/Systems Key End Markets

Product category:

Electrical protection devices

Bimetal electromechanical controls

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Magnetic-hydraulic circuit breakers

High-voltage contactors

Battery management system

HVAC/Refrigeration

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Pressure sensors

Temperature sensors

Aircraft controls

HVAC/Refrigeration

Aircraft controls HVAC/Refrigeration

Air compressors

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Commercial and military aircraft

IoT solutions

Aerospace and defense

Industrial equipment

Industrial automation

HVAC/Refrigeration

The table below sets forth the amount of net revenue generated by our sensors and controls product categories in Sensing Solutions, reconciled to total segment net revenue, for the years ended December 31, 2019 , 2018 , and 2017 :

The table below sets forth the amount of net revenue generated by our sensors and electrical protection product categories in Sensing Solutions, reconciled to total segment net revenue, for the years ended December 31, 2020, 2019, and 2018:

For the year ended December 31,

(In thousands) 2020 2019 2018

Electrical protection (1)

$ 468,635 $ 532,358 $ 514,749

Sensors 209,244 223,282 222,649

143,889 148,975 156,578

Sensing Solutions net revenue $ 821,768 $ 904,615 $ 893,976

________________________

(1) Beginning in the year ended December 31, 2020, we adjusted our product categories to better reflect how we view our products.

The product category we previously referred to as "controls" was renamed to "electrical protection," and our GIGAVAC products, which were previously grouped in "other," have been recast into "electrical protection." The amount of Sensing Solutions revenue recast from "other" to "electrical protection" in the years ended December 31, 2019 and 2018 was $50.6 million and $6.0 million, respectively.

The "sensors" product category was unchanged.

(2) Primarily includes thermal management solutions, DC to AC power converters, and brushless DC motors.

Within each of the principal product categories in Sensing Solutions, we compete with divisions of large multinational industrial corporations and companies with smaller market share that compete primarily in specific markets, applications, systems, or products.

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Technology and Intellectual Property

We develop products that address increasingly complex engineering and operating performance requirements.

We develop products that address increasingly complex engineering and operating performance requirements to help our customers solve their most difficult challenges in the automotive, HVOR, industrial, and aerospace industries.

We believe that continued focused investment in research and development ("R&D") is critical to our future growth and maintaining our leadership positions in the markets we serve.

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We continuously develop our technologies to meet an evolving set of customer requirements and new product introductions.

We conduct such activities in areas that we believe will increase our long-term revenue growth.

We conduct such activities in areas that we believe will increase our

long-term revenue growth.

Our development expense is typically associated with engineering core technology platforms to specific applications and engineering major upgrades that improve the functionality or reduce the cost of existing products.

In addition, we constantly consider new technologies where we may have expertise for potential investment or acquisition.

An increasing portion of our R&D activities are being directed towards technologies and megatrends that we believe have the potential for significant future growth, but relate to products that are not currently within our core business.

Expenses related to these activities are less likely to result in increased revenue that our more mainstream development activities.

We are exposed to many development opportunities at an early stage for several reasons:

As discussed in the Megatrends section above, one of the areas we are focusing on is Smart & Connected.

This initiative will be based on many of our current products and technology (associated with embedded and wireless systems), but will involve more complex software, systems, and solutions.

In addition, we continually consider new technologies where we may have expertise for potential investment or acquisition.

Expenses related to these activities are less likely to result in increased near-term revenue than our more mainstream development activities.

We benefit from many development opportunities at an early stage for several reasons:

(1) we are the incumbent in many systems for our key customers;

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We work closely with our customers to deliver solutions that meet their needs.

As a result of the long development lead times and embedded nature of our products, we

collaborate closely with our customers throughout the design and development phase of their products.

As a result of the long development lead times and embedded nature of our products, we collaborate closely with our customers throughout the design and development phase of their products.

Systems development by our customers typically requires significant multi-year investment for certification and qualification, which are often government or customer mandated.

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The following table presents information on our patents and patent applications as of December 31, 2020:

Patents 313 483

Pending patent applications, filed within the last five years 120 283

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"Sensata" and our logo are trademarks.

We use licensing arrangements with respect to certain technology provided in our sensor and control products.

We use licensing arrangements with respect to certain technology provided in our sensor and electrical protection products.

In 2006, we entered into a perpetual, royalty-free cross-license agreement with our former owner, Texas Instruments Incorporated, which permits each party to use specified technology owned by the other party in its business.

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Raw Materials

The price and availability of raw materials and manufactured components may be subject to change due to, among other things, new laws or regulations, including the impact of tariffs, trade barriers, and disputes, and global economic or political events including strikes, suppliers' allocations to other purchasers, interruptions in production by suppliers, changes in foreign currency exchange rates, and prevailing price levels.

We use a broad range of manufactured components, subassemblies, and raw materials in the manufacture of our products in both our Performance Sensing and Sensing Solutions segments, including those containing certain commodities, resins, and rare earth metals, which may experience significant volatility in their price and availability due to, among other things, new laws or regulations, including the impact of tariffs, trade barriers, and disputes, and global economic or political events including government actions, labor strikes, suppliers' allocations to other purchasers, interruptions in production by suppliers, changes in foreign currency exchange rates, and prevailing price levels.

It is generally difficult to pass increased prices for manufactured components and raw materials through to our customers in the form of price increases.

Therefore, a significant increase in the price or a decrease in the availability of these items could materially increase our operating costs and materially and adversely affect our business and results of operations.

The automotive industry supply chain is currently facing a global shortage of semiconductors, the technology used to make microchips, resulting in paused production on certain vehicles and increased costs to procure microchips.

As discussed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere in this Report (the "MD&A"), we believe this shortage will have an adverse impact on our operating costs in fiscal year 2021.

If the impacts of this shortage are more severe than we expect, it could result in further deterioration of our results, potentially for a longer period than currently anticipated.

Because of the diverse global nature of the markets in which we operate, our net revenue is only moderately impacted by seasonality.

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In addition, Performance Sensing net revenue tends to be weaker in the third quarter of the year as automotive OEMs retool production lines for the coming model year.

Human Capital Resources

As of December 31, 2020, we had approximately 19,200 employees, of whom approximately 8% were located in the U.S.

As of December 31, 2019 , approximately 115 of our employees were covered by collective bargaining agreements.

As of December 31, 2020, less than 100 of our employees were covered by collective bargaining agreements.

In addition, in various countries, local law requires our participation in works councils.

As of December 31, 2020, approximately 56% of our employees were female.

We also engage contract workers in multiple locations, primarily to cost-effectively manage variations in manufacturing volume, but also to perform engineering and other general services.

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We believe that our relations with our employees are good.

However, as discussed in Item 1A, "Risk Factors," included elsewhere in this Annual Report on Form 10-K (this "Report"), the loss of key employees or material work stoppages at our or our customers' manufacturing sites could have a material adverse impact on our financial condition and results of operations.

Environmental Regulations

Our employees, whom we refer to as Team Sensata, are responsible for upholding our purpose – to help our customers and partners safely deliver a cleaner, more efficient, electrified, and connected world – and embody our values in all aspects of daily work.

Our corporate values are the essence of our identity, provide a level-set foundation, and are a key way we are able to improve our culture.

Our values are passion, excellence, integrity, flexibility and "OneSensata."

Diversity, Equity, and Inclusion

We believe in treating all people with respect and dignity.

We strive to create and foster a supportive and understanding environment in which all individuals realize their maximum potential within the Company, regardless of their differences.

Each employee has the personal responsibility to maintain a respectful and inclusive workplace.

We believe that each person brings unique and valuable skills and perspectives due to their varying backgrounds and experiences.

An inclusive culture is fundamental to innovation and problem-solving.

It is the policy and practice of Sensata to hire and employ individuals without regard to age, color, disability, ethnicity, family or marital status, gender identity or expression, language, national origin, political affiliation, race, religion, sexual orientation, socio-economic status, and veteran status or other characteristics that make our employees unique.

This policy applies to all terms and conditions of employment including recruitment and selection;

compensation and benefits;

professional development and training;

social and recreational programs;

reductions in force;

terminations, and the ongoing development of a work environment built on the premise of gender and diversity, equity, and inclusion.

Our employee resource groups (“ERGs”) are company-sponsored groups of employees that support the inclusion, diversity and equity goals and objectives that are determined by the Company.

Sensata ERGs exist to benefit and advance their group members by working strategically, both internally and externally.

They also help contribute to Sensata's market success.

As of December 31, 2020, we had 11 ERGs globally focused on the following areas — women’s empowerment and career growth;

cultural awareness;

Black and Hispanic Heritage;

and emerging professionals.

Learning and Development

We believe that we will continue to be successful in executing on our business strategy by providing a broad range of learning and development programs and opportunities.

In 2017, we launched our online global learning management system, Sensata Learning, that enables employees to access instructor-led classroom, virtual classes, or self-paced lessons.

As of December 31, 2020, we delivered 63,000 hours of training spanning various required learning, professional development and many courses specifically on diversity, inclusion, and ethics.

We have a robust talent and succession planning process and have established specialized programs to support the development of our talent pipeline for critical roles in management, engineering, and operations.

On an annual basis, we conduct a leadership review process with our chief executive officer, our chief human resources officer and our business and functional leaders.

Social and Human Rights Matters

We have policies related to our position on various social and human rights matters, including child labor, forced labor, human trafficking, health and safety, non-discrimination, and environmental matters.

Each of these policies can be found on our website at www.sensata.com.

Sensata’s human rights expectations apply to all of our personnel, business partners and other parties directly linked to our operations, products or services;

as such, Sensata is committed to respecting the United Nations Guiding Principles for Business and Human Rights (2011) and its principles within our operations and supply chains.

Sensata is committed to responsible corporate practices in the area of human rights and working conditions and aligns with practices recommended by industry standards such as the Global Automotive Sustainability Practical Guidance and the RBA Code of Conduct, which incorporates the International Bill of Human Rights, namely the Universal Convention of Human Rights (1948), the International Covenant on Economic, Social and Cultural Rights and the International Covenant on Civil and Political Rights and its two Optional Protocols (1966).

Sensata also adheres to the principles set forth in the fundamental International Labor Organization ("ILO") Conventions, namely the Forced Labor Convention (1930), the Minimum Age Convention (1973), the Worst Forms of Child Labor Convention (1999) and ILO Declaration on Fundamental Principles and Rights at Work (1998).

The working conditions of our employees are, at minimum, in compliance with internationally recognized labor standards and the laws of the countries we operate in.

When national law directly conflicts with international human rights standards or does not fully comply with them, Sensata will seek ways to respect internationally recognized human rights.

Employee Engagement

Our long-term success is dependent on hiring, retaining, training, rewarding, and engaging employees for the long-term.

We strive to retain and engage employees by providing competitive pay and benefits packages and a challenging and rewarding work experience.

We want our employees to feel connected to the business and company strategy, our purpose and what we are doing to add value to them, our customers, and our investors.

Our ability to create an environment where ideas are shared freely is fundamental to ensuring our employees reach their true potential, which grants us the ability to innovate.

Each person brings unique value no matter their gender, race, age, education or place of birth.

We believe an inclusive culture is vital.

We have adopted a Code of Business Conduct and Ethics governing the conduct of our personnel, including our principal executive officer, principal financial officer, principal accounting officer, and controller, and persons performing similar functions.

In addition, we have adopted a Code of Ethics for Senior Financial Employees.

Copies of the current Code of Business Conduct and Ethics and Code of Ethics for Senior Financial Employees are available on the investor relations page of our website at www.sensata.com under Corporate Governance.

We have annual required training on Sensata Learning, our online global learning management system.

We believe our management team has the experience necessary to effectively execute our strategy and advance our product and technology leadership.

Our chief executive officer and business leaders average approximately 25 years of industry experience.

They are supported by an experienced and talented management team who is dedicated to maintaining and expanding our position as a global leader in the industry.

For discussion of the risks relating to the attraction and retention of management and executive management employees, see Item 1A, "Risk Factors," included elsewhere in this Report.

Environmental and Governmental Regulations

Our operations and facilities are subject to numerous environmental, health, and safety laws and regulations, both domestic and foreign, including those governing air emissions, chemical usage, water discharges, the management and disposal of hazardous substances and wastes, and the cleanup of contaminated sites.

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Many of our products are governed by material content restrictions and reporting requirements, examples of which include:

European Union regulations, such as Registration, Evaluation, Authorization, and Restriction of Chemicals ("REACH"), Restriction of Hazardous Substances ("RoHS"), and End of Life Vehicle ("ELV");

EU regulations, such as Registration, Evaluation, Authorization, and Restriction of Chemicals ("REACH"), Restriction of Hazardous Substances ("RoHS"), and End of Life Vehicle ("ELV");

regulations, such as the conflict minerals requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act;

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Further, numerous customers, across all end markets, are requiring us to provide declarations of compliance or, in some cases, extra material content documentation as a requirement of doing business with them.

Compliance with these laws and meeting customer requirements has increased our cost of doing business in a variety of ways and may continue to do so in the future.

We do not currently expect any material capital expenditures during fiscal year 2020 for environmental control facilities.

We also do not believe that existing or pending climate change legislation, regulation, or international treaties or accords are reasonably likely to have a material adverse effect in the foreseeable future on our business or the markets we serve, nor on our results of operations, capital expenditures, earnings, competitive position, or financial standing.

Governmental Regulations

We are subject to compliance with laws and regulations controlling the import and export of goods and services.

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These laws and regulations are subject to change, and any such change may require us to change technology or incur expenditures to comply with such laws and regulations.

Cross-border Merger

Sensata plc is the surviving entity in a cross-border merger completed on March 28, 2018 (the "Merger") with Sensata Technologies Holding N.V.

The Merger changed our location of incorporation from the Netherlands to England and Wales.

No changes were made to the business being conducted by us prior to the Merger.

Compliance with environmental and governmental regulations and meeting customer requirements has increased our cost of doing business in a variety of ways and may continue to do so in the future.

We do not currently expect any material capital expenditures during fiscal year 2021 for environmental control facilities.

We also do not believe that existing or pending legislation, regulation, or international treaties or accords, whether related to environmental or other government regulations, are reasonably likely to have a material adverse effect in the foreseeable future on our business or the markets we serve, nor on our results of operations, capital expenditures, earnings, competitive position, or financial standing.

Available Information

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business