Honeywell lasers in on tech
What would it take for you to fly again?
That question weighs on nearly every business, government, and market-whiplashed citizen eager for economic recovery. Airlines and aircraft manufacturers aside, perhaps no other company is as hell-bent on finding an answer as Honeywell, whose aerospace division is its largest. A maker of everything from aircraft engines and backup power systems to cockpit controls, Honeywell is zealously brainstorming ways to get the public back in the air.
Darius Adamczyk, Honeywell’s CEO, compares the situation to the aftermath of the terrorist attacks on 9/11, when many people felt air travel would never rebound. Speaking via a video call from his office in Charlotte, N.C., beside a bottle of Purell, Adamczyk (pronounced “a-DAHM-check”) says his team already has some ideas in mind. “In my opinion, people will fly,” he says, determinedly.
Already, Honeywell is supplying masks, gloves, and other protective gear to the national stockpile. It converted part of a goggle-making factory in Rhode Island to meet the soaring demand for N95 masks, and it has done the same at a plant in Arizona. Once health care providers and other “essentials” have enough supplies, Honeywell could begin providing airlines with protective gear for staff as well as passengers.
That’s phase 1. But Adamczyk thinks Honeywell can do more.
Just ask Que Dallara, the Vietnamese-born and Aussie-raised Honeywell executive tasked with building its fast-growing software-focused branch. She notes that Honeywell can lend its expertise in air filtration and chemical sanitizers to make plane cabins cleaner. Her own brigade is exploring the use of sensors coupled with Honeywell’s flagship Forge software to monitor and manage air quality on planes. “We do that in local hospital systems,” Dallara says, alluding to the heating, air conditioning, and air-purification control systems Honeywell sells. “We’re trying to figure out how do we do that within the aircraft.”
Then there are wilder ideas. One involves installing virus-zapping ultraviolet lights on planes. Between one set of passengers deplaning and another embarking, the intense rays could automatically irradiate the interior, killing any contagions.
Whether any of these ideas become reality is unclear. But the impressive mix reflects how Honeywell has, over the past few years, switched its thinking from one primarily concerned with operational efficiency, supplying “dumb,” if reliable, industrial parts to customers, to one that puts groundbreaking technology and automation-oriented software front and center. A member of the Fortune 500 since the list’s inception in 1955, the 134-year-old titan is in the midst of a major tech overhaul.
The next few quarters are likely to be among the most unpredictable we have ever experienced.
Honeywell CEO Darius Adamczyk
Software represents a “new set of muscles” for Honeywell, Adamczyk acknowledges, but he adds that it’s essential to the company’s future growth. Dallara sums up the stakes in even starker terms: “We will run out of steam, at some point, and be a very uninteresting company, if we don’t think about software inherently in everything we do.” Unlike some other smokestack-era companies, Honeywell can afford to gamble because of its relatively strong financial position. With $9 billion in cash, it has the freedom to take bigger risks and, potentially, reap bigger rewards.
But with the coronavirus pandemic, and a looming recession, Honeywell faces a huge and immediate obstacle to its lofty plans. The company’s biggest customers, airplane makers and airlines, are in a spiral that could take years to reverse. The petroleum industry, another huge source of revenue, is on the verge of collapse because of a historic drop in oil prices. And the company’s bet on “smart” building technology is looking shaky as office landlords struggle to collect rent and big hotels sit empty.
Of course, Honeywell has managed through troubled times before. The company zoomed through the Great Depression and World War II as one of the era’s most successful stocks, thanks in part to an expansion into bombsights for B-17s and electronic autopilot systems. And in the 2008 recession, during which the company’s stock was booted from the Dow Jones industrial average, Honeywell hunkered down, continued investing, and emerged from the crisis stronger than ever.
But as Honeywell pushes into the hypercompetitive world of tech amid an induced coma of global shutdowns, it may be facing its greatest challenge yet. No one ever said that reinventing a company founded when many people still traveled by horse and buggy would be easy.
It all started on one chilly day in 1885.
Albert Butz had had enough. At home in Minneapolis, the Swiss immigrant headed downstairs, as he did routinely, to his coal-powered furnace and opened the damper. Cool air flowed in from the outside, and the fire burned stronger. His home warmed. But inevitably, a while later, he had the opposite problem. It got too hot. He headed back downstairs to close the vent, cutting off the airflow and taming the flames.
Such was life in the 19th century. If you wanted to be comfortable at home, you constantly had to manage it yourself. Up, down. Open, closed. Hot, cold. So Butz devised an ingenious hack: a battery-powered, motor-operated device that automatically opened and closed the furnace’s damper based on a temperature reading. He filed a patent for the gadget, which he called a “damper flapper,” and created a company—the earliest forerunner to today’s Honeywell—to market the product.
Ever since then, that company has focused on automation. Only now it does so on a huge industrial scale—minus home thermostats, a business spun out two years ago.
Honeywell’s tech can be found in buildings like the Burj Khalifa, the world’s tallest skyscraper, where it dynamically heats and cools the massive structure. Its avionics, which help automate flight systems, are in commercial jets, spacecraft, and satellites. And UPS and FedEx equip their delivery people with its handheld scanners, while Amazon uses its conveyor belts to sort packages.
Juan Perez, chief information and engineering officer at UPS, says Honeywell is such a key partner that the two companies often collaborate on research and development. Currently, they’re exploring the use of voice assistants to guide van mechanics, freeing their hands during repairs, and artificial intelligence to tell workers how most efficiently to pack boxes into their signature brown trucks, a perpetual game of Tetris.
Adamczyk’s goal is to make Honeywell’s products more useful by giving them the ability to collect and crunch data for customers. Those devices, and any machines connected to them, would be able to operate more efficiently and autonomously, providing clients with better performance for less cost.
Because Honeywell supplies the sensor-laden equipment for industries like aerospace, energy, and logistics, it knows these businesses intimately and can build its software specifically tailored for them. In theory, it’s an advantage over tech giants like Microsoft, Oracle, and SAP, which lack the deep experience with industrial customers and whose software is mostly one-size-fits-all.
Already Honeywell’s tech push is paying off. Its software sales have undergone double-digit annual growth since the creation of a software-focused “connected enterprise” unit two years ago—faster than in any of the company’s other divisions. Although Honeywell does not disclose its software revenue, the amount is about $4 billion annually, based on remarks Adamczyk made in an interview on CNBC. Nearly $1.5 billion of that total can be attributed to new “Internet of things” software, Honeywell’s digital glue for Internet-connected industrial machinery, such as the type Dallara sells. The executives say the goal is to grow that segment at 20% annually.
That kind of growth is impressive for such a young initiative, but software is still just a small part of Honeywell’s overall business. Last year the company had $36.7 billion in total sales. (Story continues below.)
A trip through history
The 134-year-old company has undergone big changes over the years. Here are some key milestones.
Albert Butz founds a thermostat business. In 1927, a successor company merges with a water-heating firm begun in 1906 by plumbing pioneer Mark Honeywell.
With products ranging from thermostats to bombsights, Honeywell emerges from the Depression and World War II as one of the period’s best-performing stocks.
The company supplies weapons to the military, prompting antiwar activists to protest against Honeywell for decades.
Honeywell buys a computer maker from Raytheon. Its machines later underpin Arpanet, predecessor to the Internet.
The company acquires General Electric’s mainframe computer business to compete with IBM.
1999 | MEET THE NEW BOSS:
Aerospace giant AlliedSignal acquires the much smaller Honeywell but adopts its more-recognized name.
Honeywell loses some bragging rights after being delisted from the Dow Jones industrial average.
2018 SAYING GOODBYE:
The company spins out its historic thermostat business, now called Resideo, marking the end of an era.
Adamczyk is so adamant about the tech vision that he insists Honeywell isn’t really an industrial company, not anymore. He identifies the business, aspirationally, as a software-industrial company, a monstrous fish groping onto land, ready for its next phase of evolution.
Few models exist for a big whale like Honeywell to follow for its techie revamp. The path is littered with “a litany of dead bodies and failures,” Dallara says. One notable example is General Electric, now a ghost of its former glory after it famously face-planted a few years ago while attempting a similar metamorphosis. Problems including bad credit in its lending unit, plus a misguided, bet-the-farm–style acquisition of French industrial giant Alstom, all but assured failure.
Nicole DeBlase, an analyst at Deutsche Bank, says the biggest challenge to Honeywell’s tech makeover is in trying to compete against companies that focus entirely on software. Moreover, she pointed to General Electric’s doomed effort several years ago to sell software that predicted when customer machinery needed maintenance. “We all saw what happened with GE digital strategy, so we have a lot of skepticism around industrial companies that try to become software companies,” says DeBlase. Can Honeywell, with its lack of software pedigree, really create better digital tools than specialists that have been at it for years?
Darius Adamczyk never wanted to join Honeywell.
He disliked bureaucracy, any whiff of micromanagement, the feeling of a corporate overlord’s hot breath tickling his neck. He had reluctantly climbed aboard when, in 2008, the company bought his bar-code-scanner business, Metrologic, for $720 million. If Honeywell had not slapped him with “golden handcuffs,” forcing him to wait at least a year for half of his equity stock options to vest, he would never have stepped foot inside.
Once inside though, Adamczyk’s competitive spirit got the better of him. He led Honeywell’s handheld-scanner business, and he excelled. “Pardon my French, but we kicked Motorola’s ass,” says Roger Fradin, Adamczyk’s boss at the time. Motorola had bought a Metrologic competitor in 2007, Symbol Technologies, for nearly $4 billion.
In time, Adamczyk sought to make himself invaluable. He told then-CEO Dave Cote, “Give me the most broken business you have in the portfolio, and I’ll see if I can fix it.” Pleased with Adamczyk’s performance, which included landing UPS as a major customer, Cote handed him the process solutions business, a laggard unit that sold lumbering control equipment for plants, factories, and refineries. “Okay, if you can go in and fix that,” Cote said, “well, then, there’s a lot of things you can do.”
Adamczyk, now 54, had faced adversity before. In 1977, when he emigrated at age 11 with his parents from Communist-controlled Poland to the U.S., he didn’t speak a lick of English. He was dropped into seventh grade at a self-described kindergarten reading level. “In retrospect, it probably helped me,” Adamczyk says. “It pushed me into the uncomfortable.”
He took that same gumption to the new assignment. He doubled down on new product development and helped build up a cybersecurity software unit that now brings in $100 million in annual sales. Next he successfully steered a division that produced petrol-related chemicals and catalysts through the turmoil of a 2015 to ’16 oil downturn.
Throughout his rise at Honeywell, Adamczyk used a similar strategy in his various roles: apply analytical rigor to identify areas of potential growth, chop deadweight, and lean into software and automation. It’s these tricks, plus his ability to keep a cool head, that helped him win the succession race to become Honeywell’s CEO in 2017. About Adamczyk’s computer chops, Cote says, “He understands this in a way that I could probably study for the next 10 years and not have the same kind of grasp he does of it.”
Even the pandemic leaves Adamczyk unruffled. “This is my fourth dance or black swan event or whatever you want to call it,” he says, coolly sipping from a Michigan State coffee mug, in honor of his alma mater. Thanks to his past crisis experiences, he says, “I feel much more ready for it.”
No one knows when the airline industry may recover. Warren Buffett, considered among the savviest and most patient investors, has bailed on all of his airline investments, netting billions of dollars in losses for his firm, Berkshire Hathaway, and further dashing hopes for a quick economic recovery.
Because of the global upheaval, Honeywell’s sales fell 5% during the quarter ended March 31 compared to the same period a year prior. Profits, however, rose to $2.21 per share from $1.92 with the help of share buybacks and a favorable tax change in India.
Honeywell’s results are almost certain to be worse in the current quarter. The company expects sales to plummet more than 15% from the year prior, and beyond that, the situation is so uncertain that it has withdrawn its financial outlook for the year. “The next few quarters are likely to be among the most unpredictable we have ever experienced,” Adamczyk said during an investor call on May 1.
Already, he has started slashing costs by furloughing workers and reducing executive salaries by 10%, for a total savings of $1.3 billion. More cuts are expected in the next few weeks.
Until recently, at least, Adamczyk’s strategy seemed to be working. Honeywell’s stock had gained nearly 50% from the start of his tenure as CEO in April 2017, to the beginning of this year. But since then, the company’s shares have nose-dived, along with the rest of the market.
Despite the pandemic’s impact, there are some bright spots. One is safety equipment. To fill the shortage of protective gear required by hospitals and first responders, the company has retooled several factories to produce N95 masks—highlighted by President Trump’s recent mask-free visit to one such facility in Phoenix.
At a plant in Smithfield, R.I., Honeywell cleared out a warehouse, revamped an assembly line, and trained workers on new mask-making machines. Plant managers hired people virtually and set up thermal scanners at factory entrances to identify potentially feverish employees. And to comply with social distancing directives, they placed six-foot poles around the facility, so staff could make sure that they’re far enough apart. “We were trying to get something done in five weeks that normally takes nine months,” says Conor Ryan, the plant’s director.
The mask production is not a temporary initiative, he says. The company expects higher demand for masks, even post-pandemic, so it plans to continue producing them for the foreseeable future.
There are other reasons for optimism too.
On the morning of March 3, before shelter-at-home orders took hold, Honeywell’s Tony Uttley dropped by Fortune’s offices in New York with a prototype in his pocket.
Earlier that day the company unveiled to the world its long-shrouded work, led by Uttley, on a quantum computer, a superfast successor to today’s zippiest supercomputers. “We kept it under NDAs so strong that not even our families knew what we were doing,” he says, holding a metal square aloft between his fingers.
What Uttley grasped was the heart of the quantum computer: a thumbnail-size device, with tiny piano-key-like electrodes on its length. Normally it would be installed inside a vacuum chamber. As the computer operates, lasers shoot at atoms hovering just above the device’s surface.
In June, Honeywell expects to introduce the world’s “most powerful” quantum computer. The hope is that the device will, eventually, perform calculations no ordinary computer can replicate.
For Honeywell, the quantum computer represents a chance at redemption; the company almost dominated computing during the last century’s digital revolution. In 1963, Honeywell debuted the Liberator, a program meant to free people from the stranglehold of IBM by translating Big Blue software into a format readable on Honeywell machines. Later, in another challenge to IBM, Honeywell acquired computing divisions from Raytheon and GE.
Ultimately, Honeywell admitted defeat and spun out its computing business in the ’80s. But with quantum computing, Honeywell finds itself again facing off against IBM, which has a rival quantum project in progress. Tech giants like Google and Intel are also betting big on the nascent field. Like the others, Honeywell would rent use of its quantum computers to other companies. The powerful data crunching they provide could help airlines create more efficient routes, pave the way for Big Pharma to discover new drugs, and help Wall Street better manage risk.
Even in the midst of the pandemic, and the resulting steep decline in sales, Adamczyk is adamant that investing in his technology vision, from quantum computers to software for industrial customers of all stripes, will lay the groundwork for future successes. “You can’t give up on growth, ever,” he says.
Before Honeywell can fly, though, it needs us back in the sky.
Honeywell’s omnipresent portfolio
The company supplies a long list of industries. The following represents just some of what it produces.
- Bar-code scanners
- Jet engines
- N95 masks
- Industrial analytics software
- Warehouse robots
- Smart-building technology
- Compounds that replace hydrofluorocarbons in industrial refrigerators
- Spacecraft flight systems
- Commercial aircraft systems including radar, cockpit warning technology, and backup power
- Military aircraft systems
- Body armor
A version of this article appears in the June/July 2020 issue of Fortune.