By Bettyann Liotta , 11.08.99
Industry observers expect Micro Switch to fare well when its parent, Honeywell Inc., completes its merger with AlliedSignal Inc. later this year.
Increased access to capital would be a boon for Micro Switch, but in such acquisitions, product lines might be dropped or other cuts made, according to one distributor.
Officials at the companies would not comment on how the merger will affect Micro Switch, a part of Honeywell's Sensing and Control unit.
AlliedSignal has no switch operations, so it will probably grow that business through acquisitions, said David Pizzimenti, an analyst at Schroder & Co. Inc., New York.
Since both companies are key players in the aerospace market, Honeywell's non-aerospace businesses are attractive to AlliedSignal because it will help them achieve diversification, said one analyst who asked for anonymity.
"There's been a lot of speculation in the industry about AlliedSignal selling off Honeywell's Industrial Control unit [Sensing and Control is part of this unit] since it's so different from what they have, but I'd be shocked if they did that," she said.
Honeywell Micro Switch, the top North American switch supplier, garnered almost $190 million in sales in that region this year, according to Venture Development Corp. Worldwide figures weren't available.
Last year, Industrial Control represented $2.51 billion of Honeywell's total sales of $8.43 billion. Sensing and Control accounted for a little less than 25% of Industrial Control sales.
Honeywell's sensor business is growing twice as fast as its traditional switch business and is becoming a larger portion of Honeywell's Sensing and Controls unit, said Jim Taylor, an analyst at Venture Development, Natick, Mass.
"The U.S. switch market is growing about 3.5% annually. Sensors are growing twice as fast, so Honeywell is obviously putting more emphasis on sensors," he said.
Distributor Gopher Electronics Co., which has been carrying the Micro Switch line for 40 years, hopes the acquisition will enable the switch maker to invest more in its sales structure.
"Micro Switch has cut back in terms of a field presence for direct sales people. They need to increase design-ins," said Clark Marshall, inside sales manager at Gopher, St. Paul, Minn.
With all the consolidation in the electronics industry, Marshall has seen suppliers change after they've been acquired. "AMP is our largest line, and we've seen a number of changes since they were acquired by Tyco [International Ltd.]-some of them not favorable for distribution. AMP used to make anything for anyone-they had 400,000 line items," Marshall said.
"A lot of products are being discontinued now because they aren't very profitable. That's what typically happens when a large company comes in and streamlines operations," he said, noting that Micro Switch had started moving away from older, less profitable products even before the merger announcement, Marshall said.
Aiming to fill niches that Micro Switch doesn't participate in anymore, Gopher recently forged an agreement with Cherry Electrical Products, Marshall said.
AlliedSignal, Morristown, N.J., and Honeywell, Minneapolis, are awaiting approval of their merger from the U.S. Department of Justice and the European Commission. To get approval from the Department of Justice, the companies must divest some of their avionics operations.
The deal, an all-stock transaction, is valued at more than $14 billion. The combined entity will be called Honeywell International Inc.
Honeywell chairman and chief executive Michael R. Bonsignore will be chief executive of the new company. Lawrence A. Bossidy, chairman and chief executive of AlliedSignal, will serve as Honeywell International's chairman until his retirement on April 1, when Bonsignore will assume his title. (Under Bossidy's leadership, AlliedSignal last year launched an unsuccessful effort to take over AMP Inc. Tyco later acquired AMP.)
The companies hope to complete their integration before Bossidy retires.
The goals for Honeywell International include an annual EPS growth of more than 15% and revenue growth of 8% to 10%. The companies expect to reap annual savings of approximately $500 million by cutting overhead costs, accelerating quality measures, integrating R&D, and achieving procurement efficiencies.