One of the JPMorgan 2023 Industrials Conference. My name is Steve Tusa, the electrical equipment and multi-industry analyst here. Hopefully, you guys have a ton of good meetings and we certainly have some good content. I think, you know, 14, 15 companies that we have across a broad spectrum of verticals. We're starting this morning with Honeywell. Some news that we'll obviously follow up on in our Q&A with, I guess, now outgoing CEO Darius Adamczyk, and CEO elect or new CEO Vimal Kapur here on stage. That was announced about 1 hour ago this morning. We'll dive into that. I guess, thanks for being here, guys. Start with Darius.
Seven years is not quite the normal tenure for most of the CEOs that I've covered. I mean, I think there are some that have certainly stayed way too long. Seven is seven's a pretty short period of time. Talk about the mindset here and, you know, how you progressed through this decision?
Yeah. Well, thanks, Steve. You know, I think in terms of period of time, I mean, you know, I think six to 10 is the right period of time in my point of view. I think it all depends upon a lot of other factors too, which is, you know, is the successor ready? Is the company in the right state of transition? There were a few factors that went into my decision. The first one is, you know, first of all, we had a superb successor who was ready, who spent 34 years at the company and has a vast level of experience. Number two is, this was probably the single most important factor, I wanted to leave when the company was doing exceptionally well and positioned well for the future and it is.
I feel very good about that, Vimal will talk about that cause I think you can't, you know, like in 2020, you can't leave a company in a crisis. You gotta leave at a time where things are going well and feel very confident about how Honeywell is doing and will do and for the foreseeable future. You know, three is, you know, frankly, it's an all-consuming job. I mean, it's one of those that I take pretty seriously, it's 24/ 7 and 365 days a week. At some point, you gotta find balance in your life.
I felt that, you know, after being a CEO and CEO for seven years, and an officer of the company for a couple more on top of that, it was the right time for a transition. I've been a CEO before for a private company, I've run public company, private company, and felt good about Vimal as a successor and felt good about the company. You know, frankly, you know, sometimes people look for a different story than what I'm telling you. There is no other different story. Company's financially extraordinarily well-positioned. I'm leaving on my own. I'm not getting pushed out by the board. There's no sort of a, you know, I didn't do anything improper, cause sometimes there's that story. I'm not sick. I'm feeling good. All those things are good.
It was just the right time to sort of consider a transition.
When you look back over the last seven years, anything, you know, what do you think your legacy will be, I guess, you know, two years from now?
Yeah.
Three years from now? What would you have maybe liked to have done differently?
Yeah. Well, I think that there's gonna be three, kind of three phases of Honeywell. This was the maybe the other reason why I think this was the right phase, which is when David took over Honeywell in 2002, it was really a break and fix kind of an operation. I mean, the company was pretty broken, needed to be fixed. He did a great job doing that, from 2002- 2016, when I took over as COO.
What I wanted to do, and I think we did a pretty good job of, is I really wanted to streamline it, digitize the company both internally and externally, focus on innovation, optimize the portfolio, enhance the growth algorithm both on the top line, bottom line, generate better cash, and really optimize the operations of the company itself to provide an even better foundation for the next phase of growth, which you know, Vimal will talk about, which is, you know, I call prosper and grow is the next phase, both organically and inorganically. That's really kind of what I did, is to really transform Honeywell into a well-optimized, digitized company, both from an internal and external. The last point is we tripled down on innovation.
Whether it's our breakthrough initiatives and made a lot of bets, both that are yielding results in the short term, but also are gonna give us tremendous growth in the next 5 to 10 to 15 years. We made a lot of those bets for the future as well and really changed the mindset about innovation and how we do that. That's sort of, you know, that's kind of what we accomplished. You know, what do I do different? You know, probably not too many things, frankly. I mean, I think, you know, I wish there was more bolt-on acquisitions that were sensibly priced that we could do. I mean, I think that's still an opportunity.
In my transition to Executive Chair role, that is one of the areas I'm still gonna be focused on and, you know, frankly, have a little bit more bandwidth and help Vimal with that area. It's something that I think we can and should do. It's, and this is really important, which is when you can bolt on acquisitions to a good foundation where you have streamlined our ERPs and applications and websites and processes and implemented Accelerator and, global design models. The probability of success of those acquisitions is dramatically higher than if you just add them on to a disintegrated company. That's really the foundation that's set in place.
I guess to that point, I guess If that is the case, I would have expected maybe more activity because you can obviously pay a bit of a higher price and with your, you know, your internal capabilities perhaps drive more synergies than a company that doesn't have that capability.
Yeah. Well, I mean, you know, look, you can't get the money back, right? We still have a very strong balance sheet. You know, we have about $25 billion to spend that we committed at our investor day last year. We spent about $8 billion primarily on buying back our stock last year, which I think is gonna be was and is a good, very good decision. We still have, you know, at least $15 billion to deploy over the next couple of years, so we have plenty of firepower to still deploy. You know, some of the work, you know, was recently completed. It's not like we're done three years ago.
You know, a lot of the foundation building optimization work was really done the last 12 months or so. You know, I think that the time is right, to get in the market and look at some things that are bolt-ons and are gonna fit our strategy.
How long will you be Executive Chairman for?
You know what? That's, that's for, you know, the board to really decide. I anticipate it'll be at least through April of next year. Then we'll, you know, we'll see what's going on with the company and what's happening, and we'll have that conversation with the board and kind of left that open-ended depending upon what's happening.
Will you be hanging around investor events and being on the call, over that time period or?
Probably not. I think it's Vimal's company to run now and, you know, I think it's, I mean, I will be in the short term, but longer term, it's probably gonna be Vimal who's gonna be predominantly representing Honeywell.
Got it. Well, congratulations on a fantastic seven years.
Thank you.
For sure. Plus. Vimal, I wouldn't necessarily characterize it as a fresh look, but how much of a fresh look will you take over the next, you know, I don't know, month and a half before we're gonna have to hear something new? How much of a fresh look are you taking here?
I think you're right. I mean, the, you know, we have been working together at least for the last one year on many things. I would say that Honeywell deserves evolution to the next phase. I think every CEO has an opportunity, so it's a statement of the obvious. I think things we are focusing upon, it's my view, and I think Darius has supported that view that now we have an opportunity to further sharpen our portfolio into two big macro trends, which Honeywell is good at. One is sustainability, and second is digitization. We are an automation company by background. A very large amount of our portfolio is automation. That paves very well for digitization, our Honeywell Connected Enterprise being a big pivot of that. Sustainability, I think we're in a terrific position with our current portfolio.
How we progress our organic growth and add some good inorganic additions to that and really make. We'll always remain four-segment company, but how do we really focus it on the two big macros which are in front of us? I think that's where we really are focusing on. That's one slow change you will observe. We are already talking about it. In our kickoff meeting January this year, this is what we all talked to Honeywell leaders of how we are taking it, you know, that direction. It's not that it was direction which was evolving. I'm accelerating that. Other thing we are really working on is to enhance our margin you know, expansion, which we have committed 40-60 basis point. What is a sustained way to do that moving forward?
One thing I'm paying a lot of attention is Honeywell operating system. We call it Honeywell Accelerator. Now, you will say that, okay, every big company have an operating system. What's the big deal about it? I mean, what's so unique? I think the unique thing here is that we have been onto our operating system, like, for 15 years. This is not a, you know, they worked on Honeywell operating system, heavily focused on lean manufacturing in our supply chain, and many of you have visited and seen the impact of that. Darius took it to the next level, really took a lot of our other operational processes and put a lot of stability in that. That's commercial processes, for example, how we drive our pricing, how we drive sales excellence, how we drive innovation. Where we are going is something extremely challenging.
We are standardizing how we conduct business, externally facing business model. Honeywell revenue can be divided into four business models: products, projects or solutions, aftermarket, and software. How do you build a global design model by which you can conduct business in a standard way by business model? How do you conduct business in projects? Because we have multiple project businesses, the way they conduct business is variable. Standardizing that gives us, you know, those who appreciate Six Sigma terminology, we're reducing variability. More variability we reduce, more upside we're gonna get, and we're gonna instrument that in a manner that it's a standard procedure followed by digitization. It's a much higher level of degree of difficulty. Most companies have done more horizontal standardization, supply chain standardization, commercial. We are doing vertical standardization while the horizontal standardization already exists.
That to me is a sustain. We are doing margin expansion in all our four business models. We already have completed one out of the four, and we are both convinced that's like. It was, the results were earlier, you do anything new, you say, hmm, is it really gonna work? It sounds good, but you don't know the outcome. We have clearly seen outcome which are, you know, you can pencil in margin expansion, you can pencil in some growth algorithms. That's another change we are making. Some end substances, there's a lot of goodness in Honeywell. What Darius is leaving behind is extremely well company with good operating, you know, system, and we are adding on more goodness to that and make it even better business.
This is not a scenario where you come in and say, hey, our margins are great. We're gonna now invest for growth. There's, you know, this becomes less of a margin improvement story. Margins are central to what you see as the opportunity going forward.
Absolutely. I think we are committed to our growth algorithm, what we mentioned in the last Investor Day, 4%-7% top line growth and 40-60 basis point margin expansion. We will do both. We'll do it this year. This is not we did it last year. I think that's something which is, our commitment is, we keep performing in good times and bad times, and we'll do that, unless something you know, dramatic happens this year. We are very confident we're gonna deliver this year, as you have seen in our guidance.
When it comes to portfolio, you mentioned, is it more on the buy side or is it, or are you evaluating?
We will.
You know, you're not, you haven't worked in aerospace as far as I saw on the resume.
Yeah.
Are you an aerospace guy?
I'm a, you know, look, I'm a Honeywell guy. We do the portfolio evaluation every year as part of our strategic plan. Darius did that last year. I will do it at the end this year. There's always gonna be options. On a broader portfolio, I mean, if you look at the aero question aside, there are no massive underperformers we want to get rid of like yesterday afternoon. It's, there are some. Obviously, there'll be. In such a big company, there'll be always some stragglers, but there's no one big obvious one. The bigger transformation, I think it's all opportunity. I mean, we look everything objectively. At this point, pretty excited about the aero cycle. We are in up cycle. This year is gonna be potentially double-digit growth. That's what we have signaled.
The cycle is up for next couple of years. We're focused on aero supply chain and how do we relieve that and keep delivering on growth. On the portfolio question, we will do a formal assessment as part of our strat, present to Board, and then we'll prosecute it depending on what we all align on.
Valuation is a very personal discussion with people.
Mm-hmm.
I think, I found over the years. How do you look at valuation and returns on deals?
On the deals. I think the basic financial discipline will always remain core. I think we have strong history of not overpaying and not being overexcited. I don't think fundamentally, having been trained in Honeywell for several decades, I don't think all of a sudden I can spin my head and change. That's gonna remain pretty much. Would we be more focused on these two broad macros? Yeah, that's what we really want to do. Would we overpay? I don't think so. I mean, I think it's, it does look exciting at the headline. You can get glory for like two weeks or two months, you have to pay the price for it for a much longer time. We will absolutely do deals.
I think I mean, it sometimes looks that we underwhelm ourselves with our performance. It doesn't mean we are not putting efforts. Our efforts are not reflected on what you guys see. We simply don't want to overpay, and some expectations are off the table. We being in the industry, have been there, done that, so we know what it is worth of, and we have our point of view.
I guess when Danaher made the transition years ago, they loosened their return hurdles.
Mm-hmm.
That was kind of a big deal at the time, but obviously they've had a lot of success along the way.
Mm-hmm.
You know, with a bit lower of a return hurdle. [crosstalk] what's your mindset on the return hurdles? Will we get a different take from you or pretty status quo?
I mean, I haven't thought about it to kind of we change what's on the table. Till the time that happens, our current ruleset apply. As I said that some interesting growth vectors, I think I personally believe a lot that sustainability or climate change is a problem of a scale which most people don't even appreciate it from business standpoint. An opportunity set here is extremely large, and making some right acquisitions in that space is gonna position us in a. We already are well-positioned. This is like not that we are starting from behind. If there's a case here to look at ROI differently, I mean, we may. At this point, we haven't really visited that. I mean, this is like one-hour old news, we were not really working on that since the month.
Well, I mean, you didn't just, you didn't just show up this morning. I mean, you've, you know, been the COO and been around-
That's right.
-for a while. I'm sure you have some ideas.
One thing you can be sure, we are working together now for 11 years, that's too long a time to mutually influence each other. There's influence on this side, on that side. It's gonna take a while to separate it. I think a lot of things that you saw was a collective view of, you know, the current leadership. What I can assure is large amount of continuity, but the change which is necessary to take Honeywell to the next level.
I'm gonna ask you both this question, but, as far as the near term and, you know, this year, everything on track for guidance for first quarter as well as, you know, 2023 annual guidance?
Yeah. By the way, thanks for asking that question cause that's sometimes where our people go is. Everything is very much on track for Q1, the year. We feel very good about the year. Everything is through couple of months of this year's operating right where we expect it to. Yes, we wanna reinforce our outlook for both for the quarter and the year.
Anything bouncing around in January, February that, you know, that obviously on net in line. Anything within the businesses that you've noticed? How's China coming back at all?
I mean, I feel pretty good about the assumptions we made in our planning process for all our four SBGs. We were well within a rounding error in our estimation range for all the four segment. China in particular, I would say, everybody's thesis is Q1 is gonna be soft, and it's gonna roar after Q1. We'll see what happens. I mean, I think the foundations are strong, but geopolitics are the only worry card, which if anybody has a guest card there. Fundamentally, I think that China does look strong. It's like what happened in U.S. in 2021 after we came back from COVID, we had a huge recovery. They're the second-largest economy, so they should experience the same. They need to return to work, and everything should kind of follow the same pattern.
That what we are really counting on. At the end of the day, China is, you know, $2 billion out of 35, so it's 2% less or higher. It matters, but it is not that material from overall scheme of things. I think the rest of the geographies are performing on expected lines. Europe stress is slightly lesser than what we expected. I won't say it's less, but it is, I think, an energy. They managed the energy situation far better than most of us have anticipated. U.S. continues to be doing well. Middle East with oil and gas prices, everybody saw the eye-popping income of Saudi Aramco yesterday. I mean, there's a case here they're gonna continue to invest more there in the region. ASEAN, India, all are doing really well.
I think the world economy is on balance as best you can expect at this point, sitting when you're planning last year, there was a lot of worry cards. I think for most part, things are gliding along on expected lines at this point. We should have 2023 per guide, and Q1 per guide. We don't expect any major changes from that.
Just to give you know, kind of a comfort data point is, you know, if you take a look at our guidance range and look at the midpoint, historically, the backlog coverage was about 72%, 2019, 2020, 2021. This year, it's over 80%. I mean, we, you know, we have an exceptionally strong backlog, through couple of months. Orders are up in total Honeywell. I mean, you know, I think that the year looks good.
Supply chain is easing on expected lines. I'm not claiming victory here, their supply chain problems are solved. We clearly see in our aerospace business, we are seeing double-digit growth in the first two months, as we expected. Will that ramp up? We have put a lot of hard work that it should further ramp up, but we are not, you know, declaring that victory, given so much of uncertainty in the aero supply chain for last couple of years. The supply chain is on improvement trend, less challenges on electronics compared to past two years. Markets are more generally trending on expected lines, so that gives us confidence that we should deliver our commitment for 2023.
This growth algorithm of, you know, 4%-7%, you're not doing that this year.
We said two to five this year.
Right.
Yeah. That's primarily driven by the SPS segment, where we have revenue contraction due to warehouse automation. If you leave that aside, that one segment, we are here in that algorithm.
Okay. So that would be the flip to next year and the look forward that you should see accelerated revenue growth, removing that negative-
It will re-baseline itself.
-over the next couple of years.
I think that that segment, warehouse automation, saw some insane growth, and it re-baseline itself to whatever it is this year, so that becomes a new normal. I guess after that, this abnormal baseline goes away, and that should put us into, yeah, that algorithm range for the year.
Well, plus, you know, if you take the midpoints, three and a half could round to four, could round to five. I mean, I don't think we're shying away from our growth algorithm even for this year. I mean, I would feel very confident about the margin expansion. You know, growth, it's early, we'll see how that goes. I mean, we're very energized by what we're seeing in terms of just the unlock in the supply chain, both in aero and the electronics. If those trends continue, you know, things could be very much within our, you know, growth algorithm.
Right. Then that should accelerate in 2024 and 2025?
Yeah. Absolutely.
Absolutely.
Just to flip on SPS.
Yeah.
Yeah. I mean, just flip on SPS. I mean, if you see by each segment, aero continues to perform well, there's no reason that high growth in aero will not sustain in 2024. PMT business is absolutely benefiting from sustainability. I think IRA did its trick. We see more firm demand from new technologies we have been talking about coming in, also our advanced material business continues to perform very well. Process solution business is generally performing well in the market conditions. In the buildings, I think our business is much more institutional. We are much more stronger in, one thing I always struggle, Steve, if you recall, even during our HPD Investor Day, Honeywell Building Technologies. The buildings when I joined the business thinks office is a building. That's 20% of our business.
Our business is airports, school, hospitals, data- centers. I call it institutional. You don't stop making hospital because economy is weak. I don't stop upgrading schools. That remains very stable. Commercial has a lot of noise, for sure, for most part, that business is also having a good growth algorithm. On whole, the 4% - 7% stand on a strong fee because our macros of the end market we serve are pretty strong.
I guess HBT is one that is lower than I would have expected. I mean, your peers, obviously a little bit of different mix, Some HVAC companies, JCI more, more diversified. That's one where, you know, the low singles.
Yeah.
Including price just doesn't seem to connect with the marketplace. What's going on?
We are back.
What's going on?
We are little bit less. Our business in HBT is much more short cycle compared to our peers. We have a very strong product portfolio where from booking to delivery cycle is 30 days, 45 days. So we felt it prudent not to go very bullish in the second half of the year and made more moderate assumptions. If you have a business like our peers and have a large projects portfolio, then you have a more stuff in your backlog, and you can be more bullish, but the margin rates are also different. Our margin rates are more attractive because our portfolio is more short cycle, but that's subject to more variability in the economy, you know. We're just being cautious there. More business comes, we'll take it. We are all ready to deliver it. You know, that's how we have factored and planned that.
On the short cycle side as well in SPS, Zebra has been talking about customers, you know, delaying decisions a bit, with their purchases. What are you guys seeing on that side of the portfolio?
We do see softness in PSS segment at this point. I think that business is probably the shortest cycle in the whole Honeywell portfolio. Within the short cycle, things can change as a matter of weeks. At this point, I think we see Q1 better than Q4 from an order booking rates perspective. I think the trough occurred, and we are on the recovery. That's how we have modeled it. Our expectation is that, you know, we should every quarter better than previous quarter moving forward. Q1 better than Q4, Q2 better than Q1. We are building our pipeline, we are building, prosecuting some of the large deals. We do expect we'll execute well. We compete well with our peers, and we'll continue to do that this quarter.
Yeah, PSS is tracking about what we expected. There's not really any surprises. Yeah, there's a bit of softness in some of those end markets. You know, frankly, it's performing at or better than expectations in terms of what we had in our growth algorithm. Frankly, we expect a pretty strong second half that the comps get a lot easier. We're still operating off of backlog. Nothing different than expectations. If anything, probably slightly better than expectations.
When it comes to price, I know, you know, people ask very direct questions like, are there parts of your business where price will go down? In a $35 billion portfolio, I'm sure there's a couple businesses. On net, how do you guys, you know, look at pricing this year? Is there any risk there that would play into your margin guidance in the end?
No, I think a risk on margin guidance answer is no. Last year, we heavily focused on price. I think this year price is not gonna be 1% or 2%. It's not gonna be 10% either. It's gonna be somewhere in the middle. We are executing very well on that. One thing we are doing different this year compared to last year is to get direct material productivity. Our goal is, can we really drive direct material productivity equals to inflation? Why not? We used to do that. This is not a new thing for industrial company. Really build an equation that we offset inflation with productivity and all price falls to bottom line. That's the overall playbook we are working on. Surprising, I feel pretty confident on Honeywell capability of heavily digitized pricing model.
We can change pricing across the company on a weekly basis. Do we make 52 price changes in all businesses? Answer is no, but we have capability to do that. We constantly look at inflation elasticity and see where we have optionality to do things differently. I think our maturity level on pricing is best in class at this point of time, and that gives me a confidence to your question. Pricing is not gonna be headwind. Direct material productivity and getting and pulling that, cause sometime organizations forget. This is like the muscle memory that we use to save, you know, material costs. Pushing that harder at the organization and reviving that capability. We are doing a good job so far on that.
That's kind of overall model we are really working to drive offset inflation with productivity and really that's priced to the bottom line. That's the very thesis of our margin expansion this year.
By the way, just to add a couple of things. Number one is, you know, we're not getting price because we're shifting some price offer. We're getting price because we have technology differentiation, and we're gonna continue to do that. That is part of the innovation mindset that I've talked about. We will always get more price than our peers because we have better innovations, we have better offerings, which create more value for customers. That's how you get price. And that's whether there's inflation, there isn't inflation, that is part of our value add to customers. It's you always, you know, we have a very high vitality index, as you know. We're always introducing new products and new offerings, which offer an opportunity to capture more value. That is very much part of the Accelerator and will be part of our algorithm going forward.
Of course, we watch inflation, but even if inflation was zero, we expect to capture more value in the offerings that we bring to the market.
Right. I guess the message is the price gains are structural.
Absolutely.
They're actually going to fall to the bottom line more than they had in the past.
Yeah.
As opposed to the narrative that your pricing is higher than normal, and it's going to revert to a place where you'll be guiding down margins.
No. That Honeywell guiding down margins. Yeah, that's funny. That's not what we do. No, they're not gonna revert back or something like that. I mean, you know, I think that this is our margin performance here speak for itself. We've done it for 15 years, we're gonna continue to do it. It's because we do two things, and we do those two things extraordinarily well. Number one is we drive productivity. Every year, whether it's a good year, bad year, indifferent year, we have a productivity program, whether it's our ISC productivity, whether it's material productivity, labor productivity, automation. We have about seven different levers that we drive every single year to drive productivity. The second lever is the one we just talked about, which is drive innovation.
When you drive innovation that's differentiated and captures value, you can capture more of that value. We always have two ways to drive margin expansion. We do that every single year. I think we've established a credibility that it can be believed that we can continue to drive margins. Feel very confident. As a matter of fact, as you know, last year at our investor day, we actually increased our margin commitments from 30-50 to 40-60, because we are that confident as that is part of our algorithm.
You agree with that statement?
Absolutely.
Just making sure.
Absolutely.
Okay. All right. That was, that was pretty, that was pretty definitive. On aerospace, you mentioned that some of the supply challenges are getting a little bit better. Are you sticking to the margin targets there longer term?
Absolutely. I think longer term, we have a runway to expand margins just by our volume leverage alone. I think this year the volume growth is we have to manage our mix in terms of our deliveries to OEM versus aftermarket. In a constrained supply chain, managing our shipments in a careful manner is our biggest challenge at this point of time. On a longer term basis, we absolutely find a pathway to our long-term commitments for the aero margins.
That's 20%-
29%.
-29%?
Absolutely. Absolutely. We have a path, but we have. This is not a slide. We actually have algorithm how this works. Supply chain leverage being the biggest part. As we get more volume, you know, we're gonna get more leverage there. 2023, that volume leverage gets partially offset by some of the mix challenges because you're shipping more to OEMs. That drives, you know, the other dynamics in that, airline credits. That to me is a one-year event. It will just settle itself as we progress.
One last business one from me, just on the core of PMT, you know, the non-sustainability type of stuff. What are you seeing there, whether it's UOP or HPS? What's this trend line there?
Yeah. UOP trend line seems very robust. We see much more licensing activity in the both core technology, primarily in petrochemicals. People are investing in petrochemicals. We see more licensing activity, more wins there. People are investing in sustainability. We announced our major win with Exxon about a month or so back. It's a massive undertaking of establishing blue hydrogen plant. That's what IRA was supposed to do. It's enabling that kind of investment. We see activity on SAF continues to grow. It's just like a race to arms race, who can build more SAF plants. We are in an extremely good position to license that. We see a lot of activity in carbon capture, blue hydrogen.
UOP is in a more of a phase where it saw challenging situation from 2020 when the COVID happened and energy spend become less and everybody went much more focused on energy transition. Now that thing is settled. Now we are more into, everybody is more on a strategy execution mode, energy companies, versus what should we do? What are the optionalities there? We see pretty robust pathway there as we had signaled in UOP.
Yeah. Just to add to that, I mean, we've never seen a better pipeline for green fuels projects-
Yeah.
-than we do right now. I mean, it is. The pipeline is really filling up and, we've had a recent win, and we anticipate there'll be many more this year. UOP bookings actually look good.
We have worked in some exciting technologies in SAF. I mean, SAF is constrained, as many of you know, by supply side. This is, you know, people will buy as much as you want. We launched a ethanol, a new technology about six months back. You can produce from ethanol. Now, why does it matter? Cause ethanol is available in abundance in United States and Brazil, in India. There's a lot of ethanol, you can repurpose ethanol. As the fuel consumption goes down, which it will likely, you mix ethanol in the fuel, the ethanol becomes free now because less fuel is being consumed, and you can produce it more. That technology enables a new pathway. We are also working on possible pathways to convert CO₂ to SAF. That's a absolutely pathbreaking technology.
You know, we are aggressively working on that with some customers. That's not yet commercially launched, but I have a high confidence our team will crack the code. SAF is just keep adding new routes. It just keep opening more and more licensing doors for us and grow the market for hydrogen and for carbon capture. I remain pretty optimistic. HPS side, I think we see more opportunities in the new economy. We are focused on things like PV cell manufacturing, gigafactory automation. I know some of our peers claim they already won that market, but we'll see who wins the market. It's a new space. We have a pretty strong portfolio in gigafactory manufacturing that's underestimated on Honeywell participation, so we are actively part.
A lot of decisions will be made in the next couple of years, so HPS will see its fair share in, new economy type of manufacturing, you know, solar cell manufacturing, battery manufacturing. They're quickly moving their business towards that.
Any questions out there for these guys? Wow. Gotta do better than that over the course of the day, guys. I don't have enough content to keep it going. Let's see, 3 minutes. M&A pipeline. What are you seeing out there? Is there anything, I guess, can you comment directly on National Instruments? Are you guys still poking around that asset?
Yeah, I mean, you know, that's. M&A is probably an area that I'm gonna kinda, for a while, focus on and help offload, cause he'll have plenty to work on.
I think so.
I think he's gonna be plenty busy, so that's probably an area that I'm gonna help out as Executive Chair. Pipeline is good. You know, I, you know, we don't comment on specific, you know, acquisition targets, but, you know, think about bolt-ons and think about things that fit the portfolio, should probably give you a hint as to where we're looking in that one. You know, we are looking at a lot of different things. I actually like the timing. I think things are becoming much more attractive. You know, myself and our BD team, I can tell you we are, we have more bandwidth now, and I think we're pretty active. We're about as active as we've been in the last couple of years in really doing portfolio shaping.
I mean I think that that's gonna, that's gonna also be part of our growth algorithms. We're always gonna be shaping the portfolio, adding, you know, quality businesses that kind of fit the mega trends or growth businesses. The management level versus their technology differentiated, their matter. We're gonna be taking stuff off the bottom, which frankly doesn't fit the Honeywell profile. Some that are sort of counter to what I talked about. There's a lot of work to be done there, and I'm excited to be able to help Vimal get some of that stuff done.
When you say off the bottom, that sounds like, you know, 5% of sales or less.
Yeah, I wouldn't anticipate something dramatic. I mean, I'd say maybe 10 would be a better number, but less than 10%.
Right. As far as, you know, some of the dislocations in the tech valuations that we've seen, I guess they were dislocated to the upside, now they're maybe fair. I mean, are you seeing enough movement on software assets to make them a bit more attractive here?
Yeah. I mean, certainly they're a bit more attractive than they were, you know, 12 months ago. I think some of those are approachable, but so are other assets too. I mean, you know, I think that there we have, you know, we're looking at all types of technology companies, software are not the only technology companies out there. Yes, some of the things that we're looking at are software-oriented, some that we're looking at are not. They generally have some software hybrid element and/or they have some process element, meaning like a PMT fit.
A PMT fit?
Yeah.
Something that would be more aimed at sustainability as opposed to the traditional fossil?
Yeah. It will be a bit more focused on sustainability.
Okay. That's all I got.
Okay. Awesome. Thank you.
Thank you.
Thank you. Congratulations to you both.
Thank you.
Absolutely. Thank you.