Business Analysis Part I

Investment is a risky business. Any investor or mutual fund manager will need to thoroughly research and evaluate the targeted company if it is worth the investment. In this paper, I choose United Technologies Corporation to begin the analysis of the company. As a part I of the analysis, an overview of the company, SWOT analysis, identification of the internal and external stakeholders, description of the company’s wants and needs, and discussion of how the company handles stakeholder’s needs are discussed.
Headquartered in Hartford, Connecticut, United Technologies Corporation is ranked 44th in 500 Fortune list in 2011 (Fortune 500, 2011). United Technologies comprises of seven large companies; Pratt & Whitney, Otis, Carrier, Sikorsky, UTC Fire & Security, Hamilton Sundstrand, and UTC Power. Respectively, their products and services are aircraft/space shuttle engines, elevators and escalators, heating and air conditioning, helicopters, fire and security systems, aerospace systems, and power fuel cells (About UTC, 2011). United Technologies is a billion-dollar company. Last year, it revenue was 54.33 billion dollars, net income was 4.3 billion dollars, and the numbers of the employees are 208,200 in all over the world (UTX company profile, 2011).
SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis is an important tool to identify main attributes of a company in these categories.
United Technologies’ strengths are diversified and balanced product portfolio and large geographic diversification. With seven companies operated under United Technologies, the product portfolio is largely diversified. By market type, United Technologies is balanced at 58% in OEM and 42% in Aftermarket. Within the market type, the products are evenly distributed; 57% in Commercial & Industrial, 22% in Commercial Aerospace and 21% in Military Aerospace (UTC home, 2011). As briefly described in the overview section, Carrier company, as a manufacturer and a distributor, provides commercial, industrial, and residential heating, ventilating, and air conditioning (HVAC) and other refrigeration systems and services related to their systems; installation, retrofit and aftermarket services and components. Carrier’ products and services are provided globally to all customer directly to customers; homeowners, transportation, retail stores and food service companies and to distributorships; distributors, wholesalers, and dealers. Hamilton Sundstrand provides integrated aerospace systems, parts and services for most of aerospace industry and for the international space programs. Typical integrated aerospace systems include flight, engine control, propeller, detection systems. Typical industrial products include chemical and food processing, construction and mining. Its customers are U.S and foreign governments, manufacturers like Boeing and Airbus, aircraft operators, and distributors. Otis company provides products and services for elevator, escalators, and moving walkways systems. Its customers are businesses in commercial and residential property development across the world. Pratt & Whitney provides engines, accessory parts, and services for military and commercial aircrafts, business jets, and space propulsion. Sikorsky provides commercial and military helicopters, helicopter spare parts and services. UTC Fire & Security company provides fire suppression systems, firefighting equipment, electronic security, monitoring and response systems. UTC Power company provides fuel cells for various applications; space and defense programs, transportation, and distributed energy market. All seven divisions under United Technologies have large market share in the world. Their net sales in year 2010 were 12.9, 11.6, 11.4, 6.7, 6.5, and 5.6 billion dollars from Pratt & Whitney, Otis, Carrier, Sikorsky, UTC Fire & Security, and Hamilton Sundstrand respectively (UTC home, 2011). United Technologies operates and conducts businesses approximately in 6,000 locations in 132 countries. Approximately two-thirds of their revenue is generated from overseas. Sales by geographic locations are 39%, 26%, 20%, and 15% in the United States, Europe, Asia Pacific, and others respectively (UTC home, 2011). Breaking down by each company, sales from international operations in percentage are 83, 80, 60, 60, 51, and 36 for UTC Fire & Security Otis, Carrier, Pratt & Whitney, Hamilton Sundstrand, and Sikorsky respectively. Their diversified portfolio of products and services and the leading market share enable UTC to tap in the customer base among its companies and offset the downturn of the company as a whole in the case of low revenue occurs in one of its companies due to economic slowdown or performance issue. United Technologies weakness is high leverage. It incurs more debt. Recently in September 2011, it acquired Goodrich corporation at a cost 16.4 billion dollars according to Lemer (2011). In addition, in the same month, it purchased Rolls-Royce share of International Aero Engines at 1.5 billion dollars (UTC news, 2011). For short-term investment, United Technologies may not immediately achieve any immediate profitable returns because the incurred debts and realignment of the new acquired company would take times to be paid off. Other weakness is environmental liability. According Wikipedia source, "researchers at the University of Massachusetts Amherst identified United Technologies the 38th-largest corporate producer of air pollution in the United States as of 2008. UTC released roughly 110,000 pounds of toxic chemicals annually into the air including manganese, nickel, chromium and related compounds." (United Technologies Corporation, 2011). United Technologies have been spending such efforts to remedy the liabilities. And such efforts to remedy the environmental liabilities add costs to its overall operations, thus reduce the profitability of the company. Opportunity for United Technologies is strategic acquisition. United Technologies has grown to be one of the largest corporations in the world due to its success in acquisition of other companies, which have very little of overlap products among its companies. United Technologies maintains good credit rating, A-rating per Standard & Poor's. Combined with a strong cash flow of 5.9 billion dollars (UTC home, 2011), United Technologies is in advantageous position to acquire other companies. Thus, strategic acquisition would position the company with less competitors and bigger market share in the world. As for example, recent acquisition of Goodrich Corp, an aerospace components manufacturer, one of the largest acquisition deals in Aerospace industry would provide United Technologies an additional advantage to deal with customers and another market of aerospace components. The newly acquired Goodrich will add strength to the portfolio and dividends for United Technologies.
The main threat for United Technologies is the decline of economy. Since United Technologies is one of the major contractors to U.S government. Due the economy decline, a proposal of upcoming U.S Defense budget cut is a possibility. As one of the major contractors to U.S government, United Technologies is susceptible to the government cutback in spending related to aircraft and space in which its companies like Pratt & Whitney and Hamilton Sundstrand are likely affected. In addition, with the current withdrawal of military operations in Iraq and Afghanistan, the need for helicopter and maintenance services decrease. So the helicopter business at Sikorsky division may be affected as well. Other threat to United Technologies is the rising cost of the raw materials. Due to the emergence of the developing countries such as China, India, or Brazil, the demand of the raw materials has been on the rise. This has caused the increase of the price in raw materials. In SWOT, Strength and Weakness are internal controls while Opportunity and Threat are external controls. Opportunity and Threat categories are beyond a company’s control. Meanwhile, strength and weakness categories are within a company’s controls. So these categories should be the ones that a company needs to evaluate and address. From the analysis, I think the strength seems to outweigh all other categories. With the diversified portfolio and leading position in market, United Technologies is well in position to cover the debt discussed in the SWOT's weakness category and withstand the economic downturn as discussed in the SWOT's threat category. Though it is important that one needs to be aware of all four categories in the SWOT analysis. But since the Strength and Weakness categories are within the company’s control, the company should either improve or add more to the Strength category and eliminate or at least minimize the Weakness category. Based on the SWOT analysis of this company I would recommend investing in United Technologies.
The internal stakeholders at United Technologies are board of directors, managers and employees at all levels in all of its companies. The external stakeholders are the government agencies such as NASA, service branches, investors, state communities, customers from all over the world, and suppliers.
Priorities at United Technologies as Louis Chenevert, United Technologies chairman and CEO, puts it this way "Along with profitability and operational excellence, corporate responsibility is an essential priority at UTC." (UTC-Corporate Responsibility, 2011). Just like any other profit organization, the top priority at United Technologies is profitability. Profitability is optimized through revenue sale increase and low production cost. To increase revenue sale, United Technologies have a diversified portfolio of products and services to offer customers across the globe. To lower production cost, United Technologies is working to improve process as "operation excellence". The operation excellence is accomplished through consolidation, and reorganization structure to low-cost locations. According to Pasternak, United Technologies continues to look for ways to improve the profitability through operation improvement. For example, “United Technologies is also carefully tending to its bottom line through aggressive restructuring and cost cutting. The company has so far managed to trim expenses by more than $121 million so far this year by divesting under-performing businesses, closing ailing plants and moving production facilities to low-cost regions of the globe” (Pasternak, 2010). In other article, Gosselin states, "UTC is cutting costs from a position of strength, not weakness, as profits and growth are strong across the company, shares recently hit an all-time high and key markets such as military helicopters and jet engines are well-positioned" (2011). Furthermore, some company like Hamilton Sundstrand, which is under United Technologies, consolidated its operations and moved to lower-cost location by closing “plants in Germany, France and California, and invested in a dozen locations in Poland, China, Russia, Malaysia, Morocco, India and Mexico.” (Gosselin, 2011). In corporate responsibility, United Technologies established a 2015 Sustainability Goals to improve its employee health and safety, reduce hazardous waste and air emission pollution, and reduce the environmental impacts from its products and operations. These key performance goals are continuously monitored and compared to the baseline from 2006 results. Goals are measured in the following key categories; Non-greenhouse gas emissions, greenhouse gas emission, industrial process waste, worldwide water consumption, loss workday incident rate, supplier EH&S, materials of concern, packaging, and energy efficiency. As of 2010, these key performance indicators showed steady improvement compared to 2006 results (UTC-Our Performance, 2011).
In conclusion, as a part of business analysis, a Fortune 500 company was selected. It is United Technologies. A company overview, SWOT analysis, identification of internal and external stakeholders, company’s objectives and plans are discussed. United Technologies outlook is worth an investment.

References
Fortune 500. (2011). Snapshots. Retrieved from http://money.cnn.com/magazines/fortune/fortune500/2011/snapshots/421.html
Gosselin, K. (2011). UTC: Cost-Cutting From A Position of Strength. Retrieved from http://articles.courant.com/2011-03-10/business/hc-utc-analyst-0311-20110310_1_utc-executives-short-cycle-businesses-lower-cost
Lemer, J. (2011). UTC to acquire Goodrich for $16.5bn. Retrieved from http://www.ft.com/intl/cms/s/0/e23a9d6e-e4bf-11e0-92a3-00144feabdc0.html#axzz1avPsyb00
Pasternak, M. (2010). United Technologies: Top Trade for a Sluggish Economy. (2010). Retrieved from http://seekingalpha.com/article/229663-united-technologies-top-trade-for-a-sluggish-economy
United Technologies. (2011). About UTC. Retrieved from http://www.utc.com/About+UTC
United Technologies. (2011). News. Retrieved from http://www.utc.com/News/Press+Releases/Archive/2011/Pratt+and+Whitney+And+Rolls+Royce+Announce+Restructuring+Of+IAE+Collaboration+And+New+Partnership+To+Develop+Next+Generation+Engines+For+Mid+Size+Aircraft
United Technologies Corporation. (2011). Article. Retrieved from http://en.wikipedia.org/wiki/United_Technologies_Corporation#Environmental_record UTX Company Profile. (2011). Investing. Retrieved from http://www.marketwatch.com/investing/stock/utx/profile
United Technologies. (2011). Corporate Responsibility. Retrieved from http://www.utc.com/Corporate+Responsibility/Environment/Our+Performance