Most investors don’t think of Honeywell as a tech company, but it sure is acting like one. The industrial conglomerate and data center equipment supplier Vertiv Holdings (VRT) are teaming up to provide new solutions for data centers. It is another example of Honeywell behaving more like a tech firm, collaborating with companies in other industries to develop new products.
Earlier in 2020, Honeywell (ticker: HON) announced a software tie-up with SAP (SAP.Germany), in which Honeywell married its Forge software application with the SAP Cloud for Real Estate platform. The pairing allows building operators to aggregate financial data from SAP with operational data from Forge into easy-to-use interfaces.
In the Vertiv instance, announced Wednesday morning. Honeywell is marrying its building-management systems with Vertiv’s (VRT) data center power-management systems. Honeywell stock is up 1.6% on Wednesday, while the Dow Jones Industrial Average is little changed.
Power-management systems are critical operating components of data centers. “You don’t just plug a data center server into the wall,” explains Vimal Kapur, Honeywell Building Technologies CEO. “Data centers need clean power.” Data centers need uninterrupted power with tight voltage and current specifications. Vertiv’s products enable that, and the company competes with the likes of Schneider Electric (SU.France) and Eaton (ETN).
(The news release says that data centers in 2018 consumed approximately 1% of the world’s energy use.)
A building-management system, for Honeywell’s part, is a feature of any commercial building and controls things such as heating, ventilation and air conditioning. Honeywell controls other portions of data centers, too, such as fire and safety systems.
Honeywell’s building-technology division generated about $1.2 billion in second-quarter sales, accounting for roughly 16% of the total. Vertiv generated about $1 billion in second-quarter sales.
Initial Vertiv-Honeywell products will focus on microgrid solutions for data centers. Microgrids are small, electricity generating operations—including technologies such as solar, batteries and fuel cells—which, often are owned by building operators and not utilities. For a data center, additional power generation helps maintain 100% uptime.
“Business continuity is more critical than ever, with more people working, learning and connecting remotely, driving a simultaneous explosion in data and demand for new data centers,” Vertiv CEO Rob Johnson said in the joint news release. “Our offerings complement each other to provide greater value to data center operators.”
More people working from home has made it tough for Honeywell Building Technologies. Sales fell 17% year over year in the second quarter. That necessitates tilting toward higher-growing segments of the business, such as data centers, as well as developing new products—internally or with others.
“Collaboration requires significant commitment from two companies,” Kapur said. “Industrial companies aren’t great at that. We are trying to change that.” Looking ahead, Kapur see more products being developed with Vertiv for data centers, as well as additional partnerships.
Year to date, Honeywell stock is down 3%, trailing behind comparable returns of the S&P 500 and Dow Jones Industrial Average. Aerospace is Honeywell’s largest division. and its returns are better than other large aerospace supplier stocks Barron’s tracks. Those stocks are off about 40% year to date on average.
The aerospace division generated $2.5 billion in second-quarter sales, down 27% year over year. Covid-19 has decimated demand for commercial air travel. Traffic at U.S. airports fell more than 90% year over year in April and remains down about 60% based on recent data from the Transportation Safety Administration.
Vertiv stock is up about 63% year to date. Vertiv is the data center business of Emerson Electric (EMR) which merged with a special purpose acquisition company, or SPAC, earlier in 2020. The SPAC merging with Vertiv was run, in part, by former Honeywell CEO David Cote. He still serves on the board of Vertiv.
Write to Al Root at firstname.lastname@example.org