Honeywell International Inc. (HON) Earnings Call Transcript & Summary

We're going to get started again. I introduced the conference at 7:10, but that's a bit early. So I'll introduce the conference again. We're very excited to be here for Citi's 2025 Global Industrial Tech and Mobility Conference. Again, I'm Andy Kaplowitz, I cover multi-industry and engineering construction for Citi. We're really excited to have Honeywell with us. We appreciate them being here. We've got Vimal Kapur, who is the CEO of Honeywell. Mike Stepniak, who just started as CFO. Vimal, as I walk over to you, I think you have a couple of prepared remarks you want to talk about. So go ahead.

Thank you, Andy, for having me here and a beautiful sunny day in Miami. You wonder why you're sitting inside the conference room, but we are all here. So I would say, my second year in this conference, Andy, and a lot changed in 1 year. In 1 year, if I look back, we made 4 acquisitions in Honeywell. We announced the spin of Advanced Materials business in October. And then we announced a few days back that we will spin Aerospace as a separate business. So if you kind of take a landmark February of '24 versus February '25, Honeywell has changed a lot. Now obviously, question is, why now, why we chose to spin these 2 back-to-back and what's changed over the last few days or few months? Essentially, when I started my role, the first thing I did was to really say that will drive Honeywell into 3 mega trends: aerospace, automation and energy transition. But in my early days, I realized that there was increasing separation between specialty chemicals business, Aerospace business and Honeywell. And specialty chemicals business is poised very well for our growth. It needs capital. It obviously has options for some nice adjacencies move. And then Aerospace is poised to double its revenue in less than 10 years, which requires a massive ISC transformation, which has never been done at that scale. Not many businesses have opportunity to double their revenue predictably based upon the demand. And then Honeywell wants to really go deeper into digitalization, AI, energy transition. I kind of felt that there are very 3 different parts and started really working with the Board, what's the best path forward, and here we are, and we announced these 2 spins. I believe that the work Honeywell added over the last many years in terms of operational excellence in all the entities, it's going to be a strong foundation, which carries these businesses forward with many years ahead. So looking forward to executing the spin of Advanced Material by end of this year. We will announce in about a month's time information about which many of you want to know about the leadership team, some location, name and all that, the basic start of it, we are doing work on that. And then as we make progress, we'll announce more details on Aerospace as the time goes ahead. I know there has been a lot of inbound expectations that we provide more details on each one of them, and I fully understand that, and we will want to provide it. But having said that, we also don't want to jump ahead of the gun and provide information, which is not accurate and provide incomplete information. But fundamentally, I'm excited. I am excited to lead Honeywell in this critical period. I'm also excited on what we can create from a Honeywell perspective as a best-in-class automation stock moving forward. That's been my background, all my career. I really feel excited on opportunities where the world presents with the whole invent of AI energy transition. I think there's a lot of runway here for us. So exciting time. And then maybe a word about we provided our guide for 2025. I think the guide we have provided is realistic and something we can deliver. We can -- we are absolutely confident of delivering that. And we are on a pathway for Q1 and early days are running as expected, and we think we are on the right trajectory there. So with that, I'm going to pause here and ready for your questions.

So Vimal, you've obviously been busy. So can you talk about -- so you've done all of these things, right? Like, where do you think you've made the most impact, so far? Is it with the announced split into 3 companies? It could be, but maybe it isn't. And where have you faced the biggest unexpected challenge?

I would say the biggest thing, obviously, which is visibility seen, is the transformation of Honeywell into these 3 separate companies, but at the same time, positioning Honeywell, more of a growth orientation, with a focus on portfolio. That's something which I took on a task to say the portfolio management is the biggest job of CEO, and we constantly need to look at what we should own, what we are the rightful owner and there are a few things, which may not be a rightful owner. And I do feel that we have proven with the last 18 months of action that we can deliver on that. We have a momentum, and we'll continue to execute on it. On disappointment side, I would say, the task of transformation to any company to delivering a growth-based earning is hard. I mean we all know the industry is growing at a high rate, unless you are aligned to a mega trend, like electrification or data center, that's good, but we are not. So in absence of that, we are aligned with Aerospace, and that's really a great megatrend Honeywell possesses, and we really demonstrated benefit of that. When we take the broader company, how do you really create a growth culture, mindset of organic growth? Turning that into 100,000 people company spread over 80 countries is not that straightforward. So -- but I'm confident we are making progress. We headed in the right direction. I think Q4 results were encouraging with 6% growth. I know our all investor wants every quarter to be like Q4. And that's what I'm really working towards that, how do we give a more sustainable performance. So to that extent, because it's not sustainable, that's a bit of a disappointment from my point of view.

And also, you suggested like -- I just want to get the Q1 conversation out of the way a little bit. You suggested you were taking a prudent view on '25, especially, I think, in Q1 sales growth because of the cross currents out there. Despite -- I think you guys have talked about green shoots. You did have a better growth quarter in Q4 in your automation businesses, slightly improved growth in Q4. So have you seen continued positive momentum in those short-cycle businesses so far in Q1? Or have they pulled back at all from that slightly improved Q4 growth?

Look, Q4 is in the back, and we have delivered the results. So we feel good about it. All the businesses performed on expected lines, and we had a good short cycle recovery, both in Building Automation and Industrial Automation. But the Q1 guide, we are not taking credit for 1 quarter and saying, because it happened there, it will happen again. I think we are -- we don't have enough data points to bank it. So our Q1 guide, essentially, there are 3 drivers for it. Aerospace is now becoming more normal way. It's grown double digit for like maybe something like 10 to 12 quarters. Now as we have guided mid- to high single digits. So there's a certain impact from double digit to a different rate. So there's an element of that. We have not assumed any recovery in short cycles. So certainly, there's an element of that. And then finally, it's a bit of a nit, but we do have 2 less working days in quarter 1, that's about 1% of organic growth for us. Now it's not a problem for the year because year has 365 days, and it will just show up in Q4, those 2 extra days. But I think when they put these all 3 together, it does hold at what we have guided for Q1.

And then, you already answered part of my next question. So you aren't forecasting a material short-cycle recovery in second half of '25, correct? You're not. But you did during the earnings call mentioned the word prudent 3 times. So as Mike is taking over, I know Honeywell wants to underpromise and overdeliver. Did you at all change the way you guide this year versus last year?

Certainly, I think we certainly want to make sure that what we guide is what we can deliver. So certainly, there's a change that we are more than 100% confident that the guide we gave is bankable. We have a clear pathway to that. And we're not making assumptions of things will get better here. But the good news is if you look at '25 holistically, the positive I see there is the acquisitions we made, they really become organic in the second half of the year. So that certainly helps. We also had strong bookings in 2024 on the long-cycle businesses. So that also helps in the long-cycle portion of our business, have a more backlog. But then we also are not counting on some massive recovery. And I think part of it is, we started observing the various factors, unknown drivers of tariff, what it does to economy. I don't know. I don't -- we will not -- it will be not prudent to kind of say it will be good or bad, maybe it's good. Then Europe continues to remain in a tight spot. China recovery is uncertain. So when you put the whole thing together, we're rather saying well, we had a 1 great quarter and that becomes a data point. We felt it's -- next time, we won't use word prudent 3 times. We'll use it one, and we will use word wise. I was looking at dictionary, I heard myself, I said somebody is going to ask me, you said this word 3 times.

Well, [indiscernible]. It's easy to go back and look. So maybe just to go into Aerospace a little bit more, you mentioned acquisitions. You did CAES, which is going to be good, and Bombardier is a big transaction for you guys. But -- the business has had ongoing headwinds over time, as you know. And it's difficult to tell whether it's company specific or it's just supply chain or maybe a combination of both. So like I kind of want to go under the hood in the sense that you guys did mention the biggest unlock for free cash is in Aero with inventory management. You also -- it seems like past due backlog has stayed up. So maybe your -- you could opine on how do you mitigate these issues with the understanding that the separation could bring more focus.

Look, the Aero is going to have another strong year, 4, 3 in a row. We have guided mid- to high single digit. And the driver for that is we expect the OE demand to be the biggest driver for it. It will grow double digit. Aftermarket, we expect to grow mid- to high and then defense mid-single. So when you put it all together, that kind of sticks in the realm of our guide. The biggest variable still remains supply constraints. At the end of the day, this business is a supply-constrained business, and our volumes have been growing constantly double digit for like 10 to 12 quarters. Last quarter was again high double digit. And that's the biggest, I would say, unknown in the business that how much of supply chain recovery will occur. What's very promising is not only for 2024, not only for 2025, but look ahead is we had the historic high bookings in Aerospace ever in 2024. Bombardier is a big booking. So one can say, oh, because you book this very large deal, maybe that's a driver. If you back it out, in spite of that, it was a historic high, which positioned this business extremely well in the years to come. And on the cash side, I would say, yes, we -- it's a very challenging situation where the finished goods continue to make progress, but the raw materials are increasing at the same time because of the supply chain constraint. We do believe that we will get some relief in 2025 and that will generate extra cash, which we -- which is part of our forecast there. But I mean, just to put things in perspective, I mean I always explain to some of our investors. If you have to make an engine, it's got more than 1,000 parts. One is short, 999 is an inventory. That's how it works. And that's what we are dealing with. It's just a very complex supply chain and shortages. It just takes one person to -- not to make their commit, and then you are hanging in and waiting for that, and that just cycle continues with a high demand, which is coming in. But overall, I'm extremely positive on where the business is headed, supply chain recovery remained very robust, and cash generation is something we're really working on, specifically on the inventory side to get some working capital reduction to show up in cash.

Vimal, to your point, it's hard to complain, right, because you've had high 20s margins now for the last 3 years. Like but how much do you get involved to try to push, like whether it's hiring or whether it's supply chain resiliency, getting more partners that way? Like...

I think in Aerospace business, I mean, in each business, my engagement varies. I mean, if you're specifically saying in Aerospace, the biggest engagement has been with the customers. You can imagine the customer expectations being so high. How do we get -- win their trust that we are serving them to best of our capability in spite of their expectations are here, but we are here, and how do they know we are done enough? And my key engagement has been with all the airframers, practically all of them and some select airlines. That's where I spent a lot of my time. We have one of the most capable leadership team in Aerospace business in Honeywell, Jim Currier and his leadership team do an outstanding job. I don't engage much with supply base, et cetera, because we have a team to do that. My focus has been very, very customer-centric.

Helpful, Vimal. So we talked about Aerospace. But maybe update us on your progress in transforming the automation business. So I think one of your main goals has been to create installed base and then sort of mine that installed base with software and service and to take best practices from business to business. So maybe update us on your progress there. Because I would have thought that increased focus would have driven better growth or better margin or both, but it's difficult to see because there's a lot going on.

Yes, I think -- look, I think there are 2 parts question here. First is where the business is headed, automation and then short-term results and the long-term results. Maybe I'll answer 3 parts it. I -- in the look ahead, I'm really excited about the automation business, which Honeywell will retain, which is in Building Automation, Industrial Automation and Process Technology. Those are the 3 legs of this stool here. And really, our model in each of the business is very clear. In case of Building Automation, we have been consistent to say our business model is to have products which are equipment-agnostic sold through channels. We have been on that journey since 2018, and business will be $7 billion-ish in 2025. So the business model is really working well for us. In the process side, our business model is process technology, followed by process automation. We get to a customer early, they have to select their technology. And then once they select their technology, we are on the table, we come in the back end and maximize our content from an automation perspective. And I think -- the process technology plays such an important role in process automation is underestimated because unlike many of the industry, if you're putting a process manufacturing, you have a lot of choice of inputs and outputs. You can have a lot of choices of what raw materials I can use and what products I can make. And you need a specialist to tell you what to do because everybody has a unique combination. And that's why process technology is the heart of the game from a customer standpoint to choose the right technology, and that's where our UOP business comes in the front and then we have our automation coming in the back end. So it's a unique differentiator. And on the industrial side, the other assets we have, they are unique, there are products which are mission-critical like gas detection, critical sensors, meters for utilities, et cetera. So I think that's kind of a broader business model, coupled with one common principle to what you mentioned, Andy, build installed base, monetize installed base. That's what Honeywell will be in automation. One way to explain Honeywell will be this is what we do. From a different form, we create installed base and then we monetize installed base on services and from software. So I think fundamentally, the progress made here is, from a strategy perspective, robust. Now to your point, results are not where we like it to be. I think it's part of it is the short-term recovery in some businesses not happen. There are pockets of businesses, which are underperforming. But if I look ahead longer term, my conviction on this model performing is extremely high. And always, I focus in the last 18 months to shop from Honeywell into 3 different companies. Next 18 months, I'm really going to focus to make automation as the best performing segment. So we just going to keep working on it.

Helpful. So I think on the call, you mentioned 2% price this year, but you do have incremental tariffs baked into your assumptions. But local-for-local strategy is the essence of Honeywell, I think protecting regions, such as China. Could you remind us again, though, your raw material exposure is still in aluminum and stepping back, you sounded like you could be more flexible really around price this year. So maybe what does that mean? And you talked through that a bit more whether you can maintain price cost in the green even if inflation does pick up?

Yes. So I would say that's probably -- it's going to be one of the biggest variable to deal with in 2025 with the new changes coming in. I think in bigger scheme of things, the steel and aluminum tariffs have a very limited direct impact on us, but mostly indirect impact. So the second order our suppliers are going to see. So we need to watch that. Clearly, our contracts protect us, but something to be observed as these things come into place. But the net impact of that would not be large. Same is true the China tariffs. We worked very hard over the last few years to make our China supply chain very special -- very focused on China. We have multiple factories to support China business. The import from China into U.S. is not very large. Therefore, the impact of that is not -- it's there, but it's not material again. So a really big deal for us is tariffs on Mexico. That number is hundreds of millions of dollars. And we are working with our customer to create that sensitization on how do we manage customer expectation. We learned a lot during '21, '22 price changes. So those learning, those systems are in place. But fundamentally, our model is that we will protect our margins and passing through tariffs or leveraging other levers we have, to your point, will be the pathway to that. What's different, Andy, is between '22 and now is we are getting direct material productivity. That was not an option. That card was not there on the table. Because we are getting direct material productivity, we have to make a choice that If I have to protect my margin as a net goal and increase my volumes, what lever I pull in? Where do I go the pricing lever? Where do I use productivity? Where I use combination? And I and Mike are constantly working to find means to protect our margins. Our confidence is very high that we are going to make it happen. The thing here is this is like a goalpost, which keeps moving. It was on. Now it's moved 30 days out. Who knows 30 days from now what's going to happen? Maybe some other tariffs may pull forward. So then test of this is going to be how well we execute it while protecting our customers' interest and keeping our customers assigned with us and keeping protecting our margins, that's going to be a name of the game here this time.

Helpful. I want to ask you one question about the separation. I'll open it up to the audience, see if they have any questions in a second. So we're going to separation. I don't think we're overly surprised in the $1.5 billion to $2 billion in onetime costs, the timing of the separation second half of '26. But we're still under the impression that Aero and really, the supply chain between Aero and automation were separate. So maybe you can get it done a little faster for a little less cost. We understand it's complicated. But can you plan a potential to get it done faster or for lower cost?

Yes. I mean, we'd like to do it as early as we can, but we also take, in fact, that we have integration of 4 companies going on as we speak. Some of them are material acquisitions. So that's a work in progress. We have to finish the advanced materials spin this year, and then we have to complete the Aero spin. So I think the goal there is to do everything flawlessly. What we learned in the spins we did in 2018, Resideo and Garrett is that it's better to take 15 days extra versus trying to push through it because you want to set up those businesses for success and also set up Honeywell for success. But our spirit is we want to get it done as quickly as possible. I think right now, the target is to get the Advanced Materials done roughly by end of the year. And what we said was end of the year, early Q1. So we're kind of trending in that direction. And then Aerospace in the second half of 2026.

Any questions from the audience? Anyone want to ask question? I will continue. So I know you asked -- you were asking the call about regional sales trends. But at what point, if any, do you begin -- so again, this is a question I'm kind of asking all companies, right? It's like China has been very big for you. Europe is pretty big for you, but that's kind of now where the growth is right now. It's U.S., Middle East, India. So stepping back, if you're a U.S. company focused on automation and aerospace is doing its own thing. Do you see a bigger move towards deglobalization helping you? Or how do you -- what's the future look like in terms of where you focus?

I would say that I use the word nationalization and not deglobalization. I think every country wants to make product locally, which is not a surprise. I would do the same. And we need to make sure that where there's a scale and volume, we should be able -- if we can afford it, we will do it. But we, of course, can't afford it anywhere. I mean where the -- our priorities sit in, of course, U.S. has to be our priority. It's our largest revenue stream, will remain so, and we want to further benefit from the U.S. economy expansion. One thing which is we are seeing early shoots of benefits as some of the manufacturing setup is happening in U.S. for semiconductor and battery plants. We are also getting work in that in Building Automation. I always remind everybody there's no plant can be set up without having a building because. First, that's a 101. You have to first set up something. And in Building Automation, we do environmental controls, very critical for all these high-tech manufacturing, security, safety. So it's not meaningful enough, but if this momentum continues, we will benefit from that. We are a large player in Building Automation. But somehow, the near-shoring equals to discrete automation in many people's mind, which is fair, and our portfolio there doesn't align with that, but also -- but our portfolio aligns with Building Automation for those facilities, and we're going to get benefit from that as those things scale up. I mean, to the other questions, Europe and China definitely are not performing at the rate U.S. is performing. And that's why our guide reflects that. We are conscious of the fact that we have a good presence in those regions, and they are flat at best, and therefore, we have to be conscious of that factor. But we also see momentum in India and Middle East and ASEAN countries. So we are investing in that and benefit from it. The good news is the Honeywell footprint allows us to flex up and down depending on where the opportunity is. Because today, we are at a snapshot of opportunity in 2025. Some regions are doing well and some are not doing well. But if we fast forward 2 years from now, things will change. And that's the optionality we'll always have that we were able to flex ourselves up where the opportunity exists at -- we do well in all regions. We do well in all countries, and everything is important for us.

So Vimal, I want to dig into the segments a little bit more. So just back to Aerospace for a second, right? You talked about it kind of normalizing a little bit, but it also has this huge backlog, as you talked about, even ex Bombardier, right? So I think your guidance this year ex Bombardier is mid- to high single-digit growth, been growing high single digits to mid-double digits over last few years. So why would it slowdown that much if you've got this huge backlog on the OE side? And then I do get a lot of DOGE questions as I'm sure you're getting a couple. So like anything that you're seeing on the defense side or anything that you can talk about there?

Look, I think the business, as I said a couple of minutes back, the business will continue to grow this year and next year. I think the drivers for our growth are different for different Aerospace companies. In our case, we have a certain mix of commercial, business jet, defense. And depending on each of those end markets and the aftermarket that really determines the growth rate there. So our forecast is OE growth in double digit, aftermarket in mid to high and then defense we do expect mid-single digit. I mean the DOGE impact of that, given, look, our all our contracts are really long term. So we don't -- will it impact down the line? I'm not going to speculate on that. I guess we haven't seen anything to offer any input on that. But I would also offer that our business in defense outside U.S. is growing very rapidly. That's one of the largest growing segment. Because of the -- every country spending a lot more defense spend. So think of NATO-friendly countries, Australia, Japan, Korea. So we are clearly seeing growth of our defense business from a low base, but at a very high rate and that certainly helps to define that. I'm also excited in terms of the new products, which Aero is creating, and the momentum I mentioned some of the best win years in 2024, but the momentum is going to continue because we are ramping up our R&D spend in Aero in 2025 because we see these opportunities ahead of us. And so far, our R&D spend, Andy, has been at parity with the industry, like just about 4 -- just shy of 4% because there's a perception that Honeywell under-invested in Aerospace, that's not factually correct. Our R&D spend is at parity. We are ramping it up, so it will go to north of 4% in 2025 itself. And we also have a very interesting dimension of having our R&D footprints, not only in the U.S. and Phoenix, but also in Europe, in Czech Republic and Poland and in India. And when you true it up as if all of them were existing in U.S., our R&D spend is north of 5%, which is best in class. So this business is because it has a massive pipeline of new products. While we're looking at a 2025 guide, and it looks what it looks, but what's coming ahead, based upon the wins we have and R&D spend we are making, it's really very exciting on the things ahead there.

It's interesting, Vimal. So let me ask you about Industrial Automation. I already asked you, we talked a little bit about potential green shoots. You are guiding to low single-digit down in '25, but maybe just walk me through the businesses a little bit more. I think you've talked about a product refresh helping you in PSS and you got the PPE exit should help you in the second half. If you look at Intelligrated, it's down significantly last year, but orders are better. So maybe with the understanding you want to be conservative, what's holding you back from the talking about some improvement in IA?

Yes. So what we guided, Andy, was what's our proven delivery in second half of the year. Second half of the year, we -- ours was low single-digit contraction. So that's what's the proven delivery, and that's what we are forecasting. Things can always get better. From a segment perspective, I would say, Process Solutions business is growing modestly in line with your peers. So I won't report anything different for them. Our play in transportation, logistics and warehouse, our scanner business and our VSR automation business, I think both will be flattish this year. The -- our personal productivity solutions business, the scanning business actually have a comps of Zebra royalty of last year. So because a reported basis, numbers look different. The business is growing nicely in 2025 because of the refresh rates of large deals there. Where we have challenges where we have some still stocking in some of our sensors business, PPE business will be part of our portfolio for the first half. So there's some contraction there. So I think there are a few things which are pulling us back. But overall, that's my main focus area, that how we continue to improve our performance in industrial automation and make it grow like the rest of Honeywell so that we can deliver a better performance.

Got it. And then you alluded to Building Automation a bit, but you did grow 8%, which was quite a good result in Q4, low to mid-single-digit growth guide for '25. We talked about it. It had some European, China exposure. So you want to be careful. But it seemed to consistently outperform really over the last, I don't know, it feels like a few years here. You did mention expectations for building products growth turning positive. So first, what do you think this segment arguably does better maybe than other segments? And why can't the growth momentum last in BA, especially easy comparisons in...

Look, Q4 was strong. I think what's working well for that business is the mix of solutions and products. Solution part of the business is growing well. We have finally got some share in data centers. We were like missing in action, and I couldn't have used where data center is sitting on this. I can use it now. So all the hyperscalers are slowly becoming our customers from an automation perspective. That, therefore, showing up in the numbers. It's a small base, but we are making a rapid progress. So solution business is getting help from that. The product side of the house business, I would say, because of the global footprint, we are -- we are conscious of the fact the business is a footprint in China, the business is a footprint in Europe. And therefore, our guide reflects that element of reality that U.S. is doing well, but other parts are not doing well and the short -- and the product business is a larger part of the business there. I'm also very confident about progress and performance of Access Solutions business we bought -- acquired last year. The business is performing on expected lines. We are going to meet our commitments on that business, and that's certainly helping growth. So overall, I think the dynamics in BA business are positive. -- and we aspire to deliver strong results in line with our guide in 2025.

I want to follow up on one thing you said because most platforms are kind of small at Honeywell, like in solutions business like data center stuff, are we talking about a couple of hundred million dollars nowadays like that...

Yes, we can talk hundreds of hundred -- a few hundred million dollars. Think of any data center needs, environmental controls. So our BMS system plays a role. It needs a special form of fire protection. We have some special system for data centers. We have a high share in that. And then after we acquired the Access Solutions business, we need a very sophisticated security system in data centers, specifically which are colo types. Nobody wants to go from this location to that location. So we have a great offering in the Access Solutions business. So we have a very comprehensive portfolio. Couple that with our global footprint, program management capability, so we do present a compelling proposition, but this is a case in which we have to regain share from something we did not pay attention in until 2022 and -- but we are making good progress. I won't say I won't take a victory lap here, but this is something we are getting in a traction here.

Very interesting. And then moving to ESS. We know you've highlighted energy transition, megatrend support, but you also bought an LNG business. So I think you've got a pretty good balance in that business. So maybe just talk to us about the future of that business. And then I always hear like UOP orders are really strong, but then it doesn't seem to convert. So like maybe talk about that too and how that's going to manifest in '25?

So the way I look at ESS business we are building is we're building in the 4 vertical: refining, petrochemicals, gas and renewable fuels. And our acquisition of gas was to fill the capability gap we had in liquefication in gas and with I would say the momentum in LNG that certainly will help us. And rest of the portfolio, we have the right portfolio in the world, which requires energy security, but also needs the energy transition. And I think it's a decades long trend, and we are going to benefit from that. Now this year, I mean, UOP will do well. We have a good backlog. The projects part of the UOP is carrying a good backlog. So that will show up in our numbers as the year progress. But the projects are never linear, depending on the shipment times and the contractual commitments, but we do expect a good year from UOP, including the margin expansion here. And overall, I remain very bullish on that business. It has some unique capabilities, which our customers really like.

Are you changing anything in the strategy given the new U.S. administration or kind of...

We were always balanced. If you -- our business is called Energy and Sustainability Solution. You need both. You need to transition from today to tomorrow. It's going to take decades. We have been consistent in that. This cannot happen overnight. And the traditional solution of refining and petrochemical will stay here because these operation plants are running. We do see a slow move to renewable fuels like hydrogen, sustainable aviation fuel, not at a fast pace, but they are moving there. But now we see good momentum on LNG. And if you -- again, I'm going to remind our business model is, win the process technology, come at the back end and win process automation. And our win rates tend to be high. We can't win everything. I mean that's why this combination of having a same customer set joint offering. We have a joint offering of UOP and Process Solutions. That really makes a distinction to us in terms of our business model there.

So then quickly on Quantinuum, you highlighted progressing toward continuums technical milestones for an eventual IPO. Maybe just lay out for us what internal milestones you're tracking and what you'd like to see from the business in order to sit in an IPO. I think you announced a partnership with SoftBank recently, so that's encouraging. But as you know, some of the tech community think quantum computing is still many years away from being useful. So maybe you could comment on that.

So I would say a lot of help from the media to make quantum as a point of conversation. If I was sitting here a year back, explaining quantum, most people will say, he is losing his brains. But now that's not the case. The key for us is the way to think about it is that as the AI is being used in some of the critical sectors, specifically in pharmaceutical, life sciences, molecule discovery, the challenge there is there's not enough data set, which is available to train a model. Therefore, the models are going to be -- take longer time to get accurate. Quantum solves that problem because quantum compute power is very higher compared to normal classical compute. And in those applications, it becomes a very relevant platform to do that. But question is, how do you get there? So when quantum computer becomes useful, what's the milestone you have to hit? The magic number is 100 cubits. So we all learned a thing called GPUs in last year. Everybody wants to know about GPU. We also have to learn a new terminology called QPUs quantum processing units, and 100 Qbits is that magical number where it becomes more powerful than a classical computer of any type, in any combination. So think of this being a case, a complement to a classical compute. It doesn't replace it. It complements it where classical compute cannot really perform. And we do expect to hit 100 cubic machine by end of 2026 or early '27, which really will be then linking to the IPO of this business because that's a milestone everybody is looking at. And now this machine is usable for a commercial use, which today is a lesser use. And right now, we are going to go through another IPO -- I'm sorry, another fund raise for this business to so that we have enough money to get to the IPO. What's the right time? I mean I'll be speculating it. But getting this machine to the right qualification is going to be the point when we can take business to IPO. But I remain very positive. I think the investment Honeywell made were the right investments. And at the right time, our shareholders will benefit from the valuation we'll get when we'll monetize this business.

So before I run out of time, Vimal, I want to ask you a question I'm asking all companies, I've asked you last year. Just -- so what are the top 2 or 3 innovations and structural changes affecting your company over the next 5 years? Are there any emerging industry trends that are perhaps being overlooked in the current discourse?

I would say the biggest trend I see is in context of Honeywell as move towards autonomy. I think this is something which is not discussed enough. We kind of discussed things in isolation. There are 3 trends, which are coming together for a company like us. First is ability to collect data on cloud. Second is 5G, which allows you to collect data without wires because collecting data, the biggest inhibition is you have to put a lot of wires, cable, it's not easy, many buildings, many plants. And then finally, the AI. So how do you use the 3 together and build a solution, which is -- takes the automation towards autonomy? I'll give 1 or 2 examples. Think about a cockpit for a plane. How do we supplement a pilot to have more data so that they can navigate the plane more safely? But eventually, one day, the pilot, the cockpit can have 1 pilot and not 2, that's autonomy. Autonomy doesn't mean things go away and becomes fully automated over a period of time. Same will be true for industrial plant. Can we provide tools to an operator or to a technician so they can run their operation with a lesser skilled person versus a lower -- versus a higher skilled person? So essentially, autonomy means taking the human judgment to a higher level and leaving the tasks, which are repeatable to AI and use cloud computing for that. So I'm really excited. I think that's going to be a pathway for our growth on a longer period of time. And we are working feverishly to make it happen.

Great. So I got 15 seconds, so I probably should not ask another question. We very much appreciate the time, Vimal.

Thank you, Andy. Thank you for having me here and enjoy Miami here next couple of days.

Thank you.

Thank you.