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No Sweat? Honeywell Feels Heat From Google

Stocks in this article: GOOGHONCTRL

Google ( (GOOG)) is poised to turn up the heat on Honeywell International ( (HON)) a company that until now has stood as the 800-pound gorilla of the home automation market.

That was before Mountain View, Calif.-based Google late Tuesday said it would buy smart thermostat maker Nest Labs for $3.2 billion, building the search giant's position as a provider of smart appliances and putting it in the middle of an ongoing dispute between Honeywell, a major supplier of thermostats and related home electronics, and Nest.

Nest and Honeywell in recent years have been battling in court over patents, with Nest co-founder and CEO Tony Fadell once referring to the diversified manufacturer as being "worse than a patent troll" for alleging that Nest's intelligent thermostat infringes on Honeywell intellectual property.

Citigroup ( (C)) analyst Deane M. Dray said that Google's ownership of Nest should not have a significant near-term financial effect on Honeywell, noting that residential home automation accounts for just 6% of the company's $38 billion in annual sales. But if nothing else Nest, backed by Google's cash hoard, will no longer be painted as David in the battle against Honeywell's Goliath.

More troubling for the incumbent, with Google's help Nest could push into the commercial building control segment and pose a bigger threat to Honeywell's $16 billion-sales automation and control services unit. "The technology race within the building controls market just got put on notice," wrote Stern Agee analyst Peter Arment.

Honeywell at times has been dismissive of Nest's products, saying in the past that it believed consumers are more interested in controlling their thermostats than being controlled by the device. But the company has not had its head in the sand; rather it has been rolling out a steady stream of wifi-connected thermostats, smoke alarms and home security products for residential and commercial users.

"Given [Honeywell]'s history of product innovation we would anticipate an aggressive response to continue to protect its number one market share position," Arment wrote. Honeywell has ample resources in-house to respond, but if it wants to boost its R&D bench potential targets are out there.

Shares of Control4, ( (CTRL)) which makes an operating system that controls music, lighting, security and temperature in the house, soared 34% on Tuesday on post-Nest deal talk but is still only valued by the market at $565 million.

That would be a small price for Honeywell to pay if competition gets uncomfortably heated.

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