Honeywell CEO: We 'absolutely' see demand for energy transition with our customers

Here today I sat down exclusively with Vimal Kapoor, the CEO of Honeywell for a wide-ranging discussion about the industrial blue chips portfolio and how at a time when investors are keenly focused on the AI benefits for the industrial sector, how Honeywell is positioned for this new era. You know the AI, when we talk about word generative AI, by definition it’s probability based, It means it’s directionally correct. It may not be entirely accurate, but in context of industrial word you cannot be directionally correct, you have to be very precise. So when we make a recommendation to somebody to use an equipment or a machine or run it in a certain manner, we have to be damn sure about it and that makes it more deterministic versus probability based. And that’s where our domain knowledge comes in to use a lot of large language model tools, but in context are our applications and that what really excites me of use of AI in in the industrial world. So at a time where investors are awakening to the AI potential benefits within the industrial sector, how much of this is internal applications at Honeywell and realizing the productivity within the company and across the businesses internally. How much of this is the offerings and the evolution of offerings to those customers? It’s both. We are a huge adopter of AI or sell to internally because if you have to sell it, I rather use it myself and I personally do a lot of it. I use a lot of Copilot tools to draft my emails for example, so that you practice and really see what it is. But we’re using it in Honeywell and product development, product testing, a lot of customer service work as you had heard from many other people. But real thing, what excites me is how we take it to our customers and making the use cases across the world using our IoT platform, which we call Honeywell Forge is a massive opportunity for us. Report, who marks a year as CEO next month has outlined 3 mega trends that he’s aligning the Honeywell portfolio around automation, which speaks to sensors, AI, software, aviation and energy transition, which includes solar and wind, but also green molecules and green electrons. Regulation is going to play an important role. That’s a combination of carbon tax or tax rebates because these technologies are in the nascent state, so returns are relatively lower. So some support is required till they scale and become economically viable. No different from where wind and solar was in 2005. I mean if you retract back 20 years back, they didn’t have enough returns and some help was required to scale them, which is not necessary today. And we are in some of the green molecules in the same phase where our customers want to do it. There’s absolute demand for it, but there’s a some gap between the economic returns. So either regulation comes where the demand becomes form or if that’s not the case then some tech support or tax credit something like that. And an IRA does, you know, inflation reduction act which happened a couple of years back that does support in that. But more things like this needs to get done not only in the US but all over the world, which takes us to the future of aviation where that’s headed. Yeah. So future of aviation is all about electrification. You know the, I don’t think in our life cycle we’ll see a battery operated plane. I mean it’s a, it’s a nice thing to talk about, but immediately what excites us is Urban Air mobility or EV tolls. I think it’s the first stage of electrification of aerospace industry and Honeywell is actively playing in that really excites me on possibilities to be in New York and not get stuck in traffic. How quickly this is going to become feasible. I think all indications are 2728. There is a time when the rule framing can happen. They can be certified and these can be launched. And I believe, you know, it’s like the way iPhones change our lives 15 years back and we didn’t imagine what it will do to us. This is something very similar because it’s a different way of life, specifically in crowded cities. It’s going to have a huge implication on the social fiber and the social infrastructure. An iPhone moment? Well, he sees Evital as a fourth future. Revenue stream for Honeywell’s aerospace unit, which has been leading growth for the company overall, was up 18% last quarter and broad based from commercial to defense and space in terms of those sales. That’s a long cycle business though for Honeywell. And it’s the short cycle ones like warehouse automation that have been challenged. That’s the reason according to some analysts, the stock has lagged. Kapoor says those are inflecting with the second-half of 2024 expected to show more improvement. I would say I’ve been working for 35 years. The amount of disjointed economic cycle it is, probably is a bit unique factor. Some industry may be growing in one part of the world, but maybe shrinking in other part of the world. And broadly speaking, long cycle is performing consistently, whether it’s an energy, whether it’s an aerospace process industry, they’re performing consistently well across the world. Short cycle depends on inventory stocking when it happened at a different part of the World Economic cycle of a particular country and it’s very disjointed at this point of time. But overall, we are improving every quarter and I see you’re progressing Honeywell performance getting better.