GE-Honeywell Deal: Implications for Lucent, IBM, and the Semiconductor Industry

Strategic Insights -

General Electric Co., which has agreed to acquire Honeywell International Inc. for $45 billion, has released its earnings report before the deal. GE's earnings per share increased by 19% to 32 cents, while sales rose 18% to $32 billion. The company's six of eight reported segments saw revenue growth, with profit rising at every segment. In contrast, investors in Lucent Technologies Inc. are advised to be patient in the coming months, as the company's turnaround is expected to take time. However, patient investing could lead to two- to three-year returns by accumulating shares around current levels.

Key Takeaways:

  • GE matched Wall Street analysts' consensus estimate in its earnings report, with a 19% increase in earnings per share to 32 cents and an 18% rise in sales to $32 billion.
  • Honeywell's acquisition by GE will add an Aircraft Landing Systems division in Hanover Township, Lehigh County, to GE's portfolio.
  • Lucent Technologies Inc. is expected to undergo a turnaround, with patient investing potentially leading to two- to three-year returns.
  • IBM plans to build a plant to mass-produce chips with line-widths below 0.10 micron, allowing for increased transistor density and improved chip performance and speed.
  • The Microelectronics group of Lucent Technologies Inc. will spend $65 million to expand or establish operations for making parts for fiber-optics systems, with three projects in the Lehigh Valley potentially creating 750 jobs by 2003.
  • IBM will be the first company to mass-produce chips with such small line-widths when the plant begins production in the second half of 2002.
  • Dow Theory rates GE, Honeywell, Lucent, and IBM as "accumulate."

Statistics:

  • GE reported a 19% increase in earnings per share to 32 cents.
  • Sales rose 18% to $32 billion.
  • Lucent Technologies Inc.'s turnaround is expected to take time.
  • Patient investing in Lucent could lead to two- to three-year returns by accumulating shares around current levels.
  • The Microelectronics group of Lucent will spend $65 million to expand or establish operations for making parts for fiber-optics systems.
  • Three projects in the Lehigh Valley could create 750 jobs by 2003.
  • IBM plans to build a plant to mass-produce chips with line-widths below 0.10 micron.
  • The plant will begin production in the second half of 2002.

Sources:

  • Dow Theory Forecasts, [no date]
  • General Electric Co. earnings report
  • Lucent Technologies Inc. press release
  • IBM press release