Honeywell Inc. - Company Profile, Information, Business Description, History, Background Information on Honeywell Inc.

Honeywell Plaza
Minneapolis, Minnesota 55408

History of Honeywell Inc.

In 1883, when delivery men still toted coal into American basements, Albert Butz created a device to lift a furnace's damper when a home became too cold, letting fresh air fan the flames and warm the house. The "damper flapper," as the device was called, started a business that would become the backbone of Honeywell Inc., a multinational corporation that more than a 100 years later is not only a leading supplier of home, office, and industrial control systems, but also a major defense contractor and an integral part of America's space exploration program.

Despite its high-tech nature, Honeywell is most familiar to the public for its low-tech thermostats, especially the "Honeywell Round," Model T86, known in the 1950s for its snap-off plastic cover that could be painted to match the interior of a home. Thermostats are still a major part of Honeywell's business; today home and commercial accounts together make up a quarter of Honeywell sales. In the commercial arena, Honeywell designs computerized control systems that regulate heat and electricity flow for large buildings, and also manufactures its own switches, electronic parts, and motors for these systems. The company has also ventured into "smart" buildings that regulate themselves with packages that can link together a building's phone lines, control devices, and information systems.

While sales were on an upward trend in the mid-1990s, Honeywell's growth over the century has been far from smooth. The company fell upon hard times more than once in the years following its inception in 1885 and during the Depression of the 1930s. The longest and most difficult stretch in the company's history was its rocky marriage with the computer industry, one that ended in 1986 when it sold most of its computer assets to two foreign partners, Group Bull of France and Japan's NEC Corporation.

By the latter decades of the twentieth century, Honeywell was a powerful force in the public and private sectors. In the mid-1980s, the company had more than 35 divisions, 80 subsidiaries, and offices in all 50 states and around the world. In 1986 the company purchased the Sperry Aerospace Group, now incorporated into Honeywell's aerospace division. Honeywell consistently won military contracts in the millions of dollars, making torpedoes, guidance systems, and ammunition for the nation's defense; meanwhile, sales of its home, building, and industrial controls divisions reached $3 billion in 1987.

Honeywell traces its beginnings to 1885, the year that Al Butz invented the damper flapper. In 1886, the device was patented and the Butz Thermo-Electric Regulator Company formed to manufacture it. Butz, from Minneapolis, Minnesota, was more an idea man than a man of business, and the company does not seem to have prospered. In 1888, Butz sold the patent for the damper flapper to his patent attorneys, who founded the Consolidated Temperature Controlling Company the same year.

During its first years, the company went through financial difficulties and several name changes. It became the Electric Thermostat Company in 1892, the Electric Heat Regulator Company in 1893. In 1898, William Sweatt, a businessman who had joined the company in 1891, took over the company. He took charge of marketing the damper flapper, increasing advertising and even going door-to-door with his salesmen. This firsthand contact with customers prompted Sweatt to sell the wheelbarrow company he owned at the time and cast his entire future into the Electric Heat Regulator Company.

The damper flappers Sweatt sold remained basically the same until 1907, when a clock was added. Now the thermostat could automatically let a house cool at night and warm it in the morning. The clock also gave the thermostat a new look that would survive well into the 1930s. When consumers responding to his ads began to request the "Minneapolis" regulator, Sweatt changed the name of his product. He began calling the thermostat "The Minneapolis Regulator" in 1905; in 1909, "The Minneapolis" was put on the face of the thermostats and on the motors, and in 1912 Sweatt officially changed the name of the company to the Minneapolis Heat Regulator Company.

One year later, in 1913, Sweatt's son, Harold R. Sweatt, who had been elected to the board in 1909 at the age of 18, was elected vice-president. At the time, the company had fifty people and a motorcycle whose engine powered several machines. Sales hit $200,000 in 1914, the year that Sweatt's second son, Charles, joined the company. Sweatt stressed to his sons the importance of manufacturing thermostats, saying that it made no sense competing with their best customers by making furnaces.

As coal furnaces began to be replaced by sometimes dangerous oil burners, Minneapolis Heat Regulator made a circuit that stopped and started the burners. Early attempts failed to eliminate "puffs," as these explosions were called, but modifications on the circuit soon made it possible for the regulator to shut down the burner in case of a malfunction, and the Series 10 was born.

As the home heating market continued to expand, many companies began to manufacture products to compete with the Minneapolis Regulator. In the face of this competition, the company merged with the Wabash, Indiana-based Honeywell Heating Specialties Company in 1927. The two companies had been making complementary and competing products, including oil burner controls, clock thermostats, and regulators, and had even been involved in a legal suit over patents at the time of the merger.

The combination surprised the industry, and even the corporate heads themselves. But the merger made a lot of sense. Minneapolis Heat Regulator doubled its business and became a publicly held company, under yet another name: the Minneapolis-Honeywell Regulator Company. William Sweatt became chairman of the board in the new Minneapolis headquarters; Mark Honeywell, president; Harold Sweatt, vice-president and general manager; and Charles Sweatt, vice-president. The merger gave the business the resources to expand even after the 1929 stock market crash, and marked the start of a decade of acquisition and growth.

In 1931, Minneapolis-Honeywell bought Time-O-Stat Controls Corporation through an exchange of stock. Time-O-Stat was the result of a 1929 merger between four Wisconsin heating controls companies. The purchase brought the company several mercury switch patents and other controls technology. Minneapolis-Honeywell's next big acquisition marked a move to industrial accounts. In a chance train meeting, Willard Huff, Minneapolis-Honeywell treasurer, and Richard Brown, president of Brown Instrument Company, began discussing the similarities of their businesses. Brown's products measured the high temperatures inside industrial machines, while Minneapolis-Honeywell was a low temperature controls company. Within weeks, the firms were negotiating, and by the end of 1934, Minneapolis-Honeywell had purchased Brown's assets for $2.3 million.

Finally, in 1937, dissatisfied with the high costs of its own pneumatic control devices for larger buildings like schools and offices, Minneapolis-Honeywell bought the only two competing companies in the field: National Regulator Company and Bishop & Babcock Manufacturing Company. In the ten years since the 1927 merger with Honeywell, Minneapolis-Honeywell had tripled its employee ranks and its sales. Despite the Depression, the company had $16 million in sales and 3,000 employees.

Harold Sweatt had become president in 1934, following Mark Honeywell, who had succeeded William Sweatt. At the start of World War II, Sweatt headed a company with the experience and resources needed to develop precision instruments and controls for the military. In 1941, the army called upon a group of Minneapolis-Honeywell engineers who had worked on heat regulating systems to develop an automatic bomber pilot that gave precise readings of high-altitude coordinates. The company also produced a turbo regulator and an intricate fire control system. By war's end, Minneapolis-Honeywell was well on its way to becoming a major defense contractor.

After the war, Harold Sweatt held fast to his father's rule and kept moving in the direction of controls. He purchased two planes and turned them into flying laboratories for his aviation and research staffs. He also began buying companies related to the manufacture of control instruments. One such purchase came in 1950, when Sweatt bought the Micro Switch Division of the First Industrial Corporation of Freeport, Illinois. Micro switches are used in vending machines, industrial equipment, and even tanks and guided missile systems. Generally they need a small amount of physical force to activate the electronics. Two years after the purchase, Minneapolis-Honeywell was making 5,000 variations of micro switches.

About this time, Raytheon, a Massachusetts electronics firm, approached Minneapolis-Honeywell about teaming up to enter the computer business. After studying the issue for months, Minneapolis-Honeywell accepted Raytheon's offer in April of 1955. The companies formed Datamatic Corporation, a subsidiary owned jointly by the two companies. In 1957, the company installed its first line of mainframe computers. The Datamatic 1000 filled several rooms and weighed some 25 tons, and the first unit sold for $2 million. But Datamatic lacked the customer base that gave competitors like IBM an early edge. Raytheon wanted out, and that year the operation became Minneapolis-Honeywell's Datamatic division.

The company's aerospace divisions were also developing quickly. From the development of its first autopilot in 1941, Minneapolis-Honeywell was at the forefront of technology. By 1964, Minneapolis-Honeywell won a bid to make space vehicles designed to carry a variety of NASA equipment. Two were eventually launched, but the company decided expenses were too great to enter into the prime contract field. Still, the company was involved in every American space mission, and supplied digital flight control systems and display and performance monitors for the space shuttle. Also in 1964 the stockholders approved yet another name change, to Honeywell Inc.

While Honeywell ventured further into computers and aerospace technology, its international operations were also expanding. Between 1945 and 1965, Honeywell's overseas business in Great Britain, Canada, Japan, and the Netherlands had grown from almost nothing to account for 23 percent of sales and 20 percent of its work force; these percentages stayed roughly the same into the 1980s. In 1965, Honeywell's overseas operations consisted of 17 subsidiaries with 12,000 employees and revenues of more than $160 million.

Meanwhile, the computer division finally showed a profit in 1967, 12 years after it was established. But research and development costs continued to be enormous. In 1970, Honeywell shocked the business world by purchasing the large systems computer segment of General Electric. The purchase doubled its business and added 25,000 employees in a new subsidiary called Honeywell Information Systems (HIS). The move put Honeywell in second place in computers, behind only IBM. But in the end, the merger only pitted Honeywell against IBM, leading to a long, hard struggle and, eventually, disillusionment.

The early 1970s were a bumpy time for Honeywell. The company received a lot of negative publicity for its involvement with the war in Southeast Asia and for its investments in South Africa. One of the most vocal demonstrators was Charles Pillsbury, a dissident stockholder and heir to the flour empire, who in 1970 shouted the memorable question to Honeywell president James H. Binger, "How does it feel to be the Krupp of Minneapolis?," referring to the German industrialist who had helped re-arm Germany following World War I. But Binger, an outspoken and controversial leader, declared in 1971 that as long as the conflict in Southeast Asia continued, Honeywell would furnish support.

Within the corporation, the 1970s were marked by efforts to streamline business and cut out nonproductive assets. One of the divisions that dwindled during this period was the home smoke alarm business, which was finally cut in 1980. The market had become increasingly competitive; though well known for its fire protection products, the company discontinued its line. Honeywell's entry into microcomputers did turn a profit, doubling sales every year between 1976 and 1980. Unfortunately, however, HIS suffered nearly a 50 percent decline in operating profits between 1981 and 1982. Compounding the company's financial difficulties, anti-apartheid activists protested against the company's South African interests, and Native Americans claimed that land Honeywell held for defense experiments was sacred, and demanded Honeywell stop all activities there.

In 1982 Honeywell began a major corporate restructuring. James Renier, a Honeywell executive who had climbed the ranks, became president of the computer division. A total of 3,500 jobs were eliminated through layoffs, retirements, and transfers, earning Renier the nickname "Neutron Jim": "[A]ll the buildings were still there," one survivor explained to the Wall Street Journal, "it's just the people who were gone." Renier became president and CEO of Honeywell in 1986. Renier also redefined the corporate attitude toward IBM, resolving to live in an IBM world and begin marketing products that would work alongside IBM computers.

Once the computer division was whipped into some kind of shape, Honeywell decided in 1986 to sell the majority of it to Group Bull of France and Japan's NEC Corporation, creating a three-way joint venture. Honeywell retained 42.5 percent of the stock, but intended to sell all but 20 percent to its partners. The divestiture of its computer unit left Honeywell to concentrate on sales of thermostat systems, automation products, and aerospace and defense equipment.

In 1988, Honeywell suffered from a series of unusual charges related to the company's defense unit. Serious cost overruns in a number of contracts, many of them carryovers from the days when Unisys owned the unit, had to be absorbed by the company, resulting in a net loss of $434.9 million for the year. As a general slowdown in defense contracts combined with the Pentagon's waste-reduction measures created a tougher business climate for defense contractors, James Renier looked to the company's commercial aerospace business to pick up the slack. By 1989 defense and aerospace accounted for almost half of Honeywell's sales and were contributing significantly to the bottom line. At the same time, automation systems were getting a boost from an upswing in capital investment.

The streamlined and focused Honeywell looked forward to reaping the rewards of its high-margin units. Honeywell had a solid foothold in the automation-systems market and continued to be a leader in heating controls and alarm systems. Buoyed by the 1987 acquisition of Sperry Aerospace Group for $1 billion, sales in its space and aviation unit leapt by 21 percent a year, despite a $435 million loss posted for the unit in 1988. Renier also streamlined operations, cutting 5,000 jobs, improving inventory turnaround time, and accelerating receivables collection. By 1991, although a recession had hit the company's major markets, operating margins had grown to 11 percent, and net income was about $331 million.

The recession continued through 1992, especially in the airline industry. But losses in Honeywell's Space and Aviation Unit were offset by record sales in its automation-systems unit. From a marketing perspective, the company began to successfully exploit growing societal concerns about environmental protection. Its most successful controls and automation systems were designed to help industries conserve energy, improve productivity, and meet emission standards set by the U.S. Clean Air Act.

Renier resigned as chairman and CEO in 1993, succeeded by Michael R. Bonsignore, who had been president and chief operating officer of the company. Despite its improved marketing focus and successful new line of building controls, Honeywell's 1993 sales were about $6 billion--$1 billion less than they were in 1988. Profits had declined dramatically, and a lawsuit further threatened the company's profitability, when a jury awarded Litton Industries a $1.2 billion judgment against Honeywell for patent infringement.

Under Bonsignore the company met its projected financial goals for 1994. Nevertheless, investor confidence began to erode as the company's long-term restructuring plan was perceived as a failure. Competitors Emerson Electric Co. and Rockwell International Corp. had nearly twice the operating margins of Honeywell, even in a sluggish market. Net income declined in 1994 to $279 million, although sales had increased 1.7 percent to $6.06 billion. Honeywell's stock prices slid as analysts complained that the company should have been more aggressive in trimming costs and accused management of supporting a "clubby, paternalistic culture that avoids tough decisions." Even a reversal of the $1.2 billion Litton judgment and a $600 million stock buyback did little to reverse Honeywell's slipping stock prices.

Despite these difficulties, Honeywell management remained confident in its restructuring plans and predicted double-digit growth in the near future. Their confidence was based on the fact that Honeywell remained a leader in technological development and continued to hold a respectable market share in both of its key divisions. But the company's future was tied to management's ability to deliver profits. Based on Honeywell's inconsistent financial record of the late 1980s and early 1990s, Bonsignore had a difficult task in front of him.

Principal Subsidiaries: Honeywell Federal Systems Inc.; Honeywell Finance Inc.; Honeywell Asia Pacific Inc. (Hong Kong); Honeywell Ltd. (Canada); Honeywell Europe S.A.; Tata Honeywell Ltd. (India; 50%); GoldStar-Honeywell Co., Ltd. (South Korea; 50%).

Additional Details

Further Reference

Berss, Marcia, "Under Control," Forbes, January 31, 1994, pp. 50-54.The First 100 Years, Minneapolis: Honeywell Inc., 1985.Kelly, Kevin, "Not So Sweet Times at Honeywell," Business Week, February 20, 1995, p. 66.Therrien, Lois, "Honeywell Is Finally Tasting the Sweet Life," Business Week, June 3, 1991, p. 34.

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