Honeywell Says It Will Trim 4,000 Jobs to Reduce Costs; May Purchase Sperry Unit
Honeywell Inc., the Minneapolis-based computer and electronics giant, on Thursday disclosed plans to eliminate about 4,000 jobs by the end of the year, part of a cost-cutting campaign made necessary, the company said, by tough international competition and a slow economy.
At the same time, Honeywell denied persistent rumors that it is a takeover target and announced that it is considering the purchase of Sperry Corp.’s aerospace business--an acquisition that some analysts say could cost about $800 million.
The work force reduction will affect more than 4% of Honeywell’s 94,000 employees, but it was unclear Thursday what segments of the company would bear the heaviest burden of job cutbacks. The company said the 4,000 jobs will be pared through attrition, early retirements and layoffs.
“I don’t know where the reductions will be made,” Sylvia BurgosWander, a Honeywell spokeswoman, said. “Division managers will be looking at this in the weeks ahead.”
In addition, salary increases will be “severely limited” in 1987 and other expenses also will be trimmed, the company said.
Honeywell stock dropped sharply on the New York Stock Exchange after the announcements, closing down $5.625 a share at $72.875. It had soared to $84.25 during Wednesday’s trading on speculation that Honeywell would agree to be purchased or sell off major assets--possibly its computer business.
Much of the Wall Street acquisition speculation had centered on talks between Honeywell and NEC Corp. of Tokyo, but on Wednesday the two companies announced nothing more than the expected approval of a joint venture to market supercomputers in the United States and Canada. Later Wednesday, the company issued a brief statement that it believed there was “no substance to rumors of a takeover of the corporation.”
Thursday’s disclosure that Honeywell’s board of directors had authorized management to consider the purchase of Sperry’s aerospace segment drew mixed reaction on Wall Street, where some analysts questioned the seriousness of Honeywell’s interest.
“I think it’s a smoke screen, a signal to Wall Street that they’re not going to be taken over, but I’m not sure Honeywell’s the company that figures to get Sperry’s aerospace business,” Steve Binder, a Bear Stearns aerospace analyst in New York, said.
He said Boeing and “six or seven other companies have a direct interest” in Sperry’s aerospace operations. And Thomas Crotty, an analyst with the Gartner Group in Stamford, Conn., said he expects “a lot of bids” for the profitable Sperry business that makes electronic gear for military and commercial aircraft.
The announced interest in Sperry’s aerospace business comes in the same week that Sperry was formally merged into Burroughs Corp., completing a $4.8-billion acquisition.
Skip Bushee, executive vice president of Infocorp in Cupertino, Calif., said “it’s a good idea for Burroughs to sell off non-computer portions of Sperry”--but he questioned whether Honeywell is the right buyer. He noted Honeywell’s strength in computers, automated manufacturing and control systems such as thermostats and security products.
“It’s not clear to me that Sperry’s aerospace segment would be a good fit for Honeywell,” Bushee said.
Honeywell’s aerospace and defense business generated $1.9 billion in revenue last year, more than a quarter of the company’s total revenue of $6.6 billion. Information systems generated $1.95 billion.
The layoffs announced Thursday are part of a series of cutbacks ordered in recent years at Honeywell. Two years ago, 1,000 jobs were trimmed from Honeywell’s nine California operations alone. Companywide, about 3,000 Honeywell jobs have been eliminated since 1980.
Analysts Not Surprised
The latest announcement of reductions did not surprise industry analysts. Gartner’s Crotty said overcapacity in the computer markets and a two-year-long sales slump means “consolidation of this industry is far from over.” He predicted another round of cutbacks industrywide if there is no resurgence of market demand in the near future.
And Stephen Josselyn, senior research analyst with International Data Corp. of Framingham, Mass., said changes in the computer markets have left Honeywell losing market share. Despite its substantial size, Josselyn said, “Honeywell’s not much of a force in the computer industry these days.” Infocorp’s Bushee called Honeywell “a smaller fish in the pond.”
Honeywell got into the computer industry nearly 30 years ago and went on to challenge International Business Machines for the large business computer market. It bought General Electric’s computer business in 1970 and six years later bought Xerox’s computer operations.
But like Burroughs, Sperry and NCR, Honeywell was never able to seriously challenge IBM, which today dominates the computer industry with more than 70% of the large-computer market.
