Honeywell Does It Again: EMS Acquisition Fills Key Technology and Market Gaps
It had been well known that EMS was exploring options to sell the business and at this point it should probably come as no surprise that Honeywell was the last company standing when it announced its tender for EMS for $33/share, or approximately $506 million. Honeywell has now invested well over $1.5 billion in the acquisitions of Handheld Products, Metrologic and EMS over the past several years. Note: for the sake of this post I will focus on the Global Tracking Business Unit of EMS, which includes its LXE branded rugged mobile computing products. This division will be integrated as part of Honeywell Scanning and Mobility. EMS’s Aviation and Defense and Space divisions will be integrated into Honeywell’s Aerospace & Defense division.
In the Enterprise Mobility and AIDC Technology markets, Honeywell’s post EMS acquisition looks something like this (based on 2010 revenues):
- #3 rugged handheld computer vendor
- #2 forklift mounted computer vendor
- #2 handheld scanner vendor
- #1 2D handheld scanner vendor
Besides bolstering Honeywell’s rugged mobile computing position, there are other relevant benefits from this transaction, including its market and solutions footprint, such as:
- Warehouse, Port and Multi-Modal Logistics. This segment represents approximately 25% of the rugged handheld computer market and almost 40% of the handheld scanner market. LXE has been one of the leading rugged handheld brands in this segment and derives almost 80% of its revenues from deployments in these environments. LXE’s devices are generally considered higher-end and are optimized to operate in some of the more challenging and harsh logistics environments such as port facilities and cold-chain. Prior to this acquisition Honeywell had virtually no position in warehouse/DC and port facilities to speak of, thus increasing their TAM by over $800 million.
- Forklift and wearable computing solutions. Both are clearly niche solutions and highly project-based. However, having an effective forklift strategy is critical in the warehouse. LXE is one of the leading brands – a positioned it fortified through the acquisition of Akerstroms in 2008. The wearable computer market is even more nuanced than the forklift market. Although LXE generated less than $10 from its wearable solutions in 2010, they could represent key entry points into major logistics solutions that require these devices for high-speed sortation solutions.
- Fleet and asset tracking solutions. Earlier in 2011 EMS attempted to merge its LXE and Global Tracking divisions into one business unit. Although these businesses had limited synergies in terms of customer base, business model or global footprint the opportunity was to extend Global Tracking’s asset management and tracking capabilities to more effectively manage the hand-off from the truck to the warehouse/DC and vice versa. Global Tracking has had little opportunity to test this value proposition. However, the growth for mobile computing and data capture solutions in clearly strongest in many field based environments – areas where Honeywell has had some traction (especially in the postal and mail/courier segments).
Clearly this deal brings much needed consolidation to the highly fragment (and maturing) rugged mobile business and provides scale to Honeywell’s Scanning and Mobility business. This transaction potentially turns Honeywell into a more formidable challenger to Motorola’s dominant position in the rugged handheld market and leadership position in the handheld scanner market. However, this transaction is perhaps more about Honeywell attempting to distance itself from other vendors such as Intermec, Datalogic and Psion, rather than closing the gap with Motorola.
Nevertheless, Honeywell, faces some considerable challenges as it looks to create an integrated, market leading organization. Some of the more immediate mobile concerns include:
- Mobile platform consolidation. Prior to the EMS tender, Honeywell had already announced an aggressive portfolio expansion strategy for 2011 (including the recently launched Dolphin 6000 ScanPhone). However, while Honeywell’s peers were leveraging and benefiting from singular mobile platform development strategies, Honeywell’s mobile portfolio was fragmented. Adding LXE’s rugged mobile computers to the mix only further fragments this portfolio elevating the need for accelerated rationalization (especially considering the mix of processing architectures; OS versions; etc.).
- Software strategy. That the rugged mobile computer is commoditizing is no surprise. Look no further at the degree of private labeling occurring and the products rolling out of the factories of Asian ODMs. Consequently, leading OEMs are increasingly challenged to innovate beyond the actual device. Honeywell clearly has some interesting IP when it comes to data capture (imaging) technology. However, the company continues to play catch up regarding its software assets. Its device management strategy lacks any real innovation or vision. Moreover, its software capabilities in relation to specific utilities to support connectivity, application development or other services are more of a work in progress.
Nevertheless, (ignoring for a minute the awesome investment Honeywell has made to acquire these businesses), Honeywell has emerged as a stronger contender in the enterprise mobility and AIDC markets. This move sends a salvo across the bows of its peers as it looks to further rationalize the competitive landscape.