Tyco International (TYC)

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Tyco International (NYSE:TYC) is a manufacturing and industrial services conglomerate. Its largest subsidiary is the electronic security company ADT Worldwide, which provides safety devices like fire and burglar alarms and monitoring services. Tyco's other subsidiary divisions include Fire Protection Services, Flow Control, Safety Products, and Electrical and Metal Products.^[1] The company earned $17.2 billion in revenue but incurred a net loss of $1.2 billion in net income in 2009.^[2]

In each of its five main industries, Tyco is the largest player among a highly fragmented group of smaller competitors. This gives the firm a great advantage in controlling costs and funding research, and its large capacity helps it land major contracts to distribute its products. Tyco's Fire Protection Services segment, for example, benefits from a vertical market approach, meaning the company sells large contracts to organizations that operate in multiple locations, such as the health care, government, education, and commercial sectors.

Tyco operates in over 60 countries, and about half of its revenue comes from overseas. A weakening dollar has boosts Tyco's revenues, as American-made goods are cheaper to buyers in foreign countries, increasing sales.

Company Overview

Tyco is divided into five main segments:^[3][1]

• ADT Worldwide (41% of net revenue) sells electronic security systems to residential, commercial, industrial, and government customers.
• Fire Protection Services (20% of net revenue) deals with fire detection and suppression systems. This group works with customers such as airports, shipping companies, fire departments, and homeowners.
• Flow Control (22% of net revenue) makes valves, pipes, fittings, and similar products for energy markets.
• Safety Products (9% of net revenue) manufactures and sells fire suppression, security, and life safety products like breathing apparati, video management systems, and intrusion security systems. It also makes the electronic systems sold by ADT and Fire Protection.
• Electrical and Metal Products (8% of net revenue) deals with steel tubing and pipe products.

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Trends and Forces

• Tyco is the largest firm in several fragmented markets: Tyco is often the biggest player in each of its industry segments, because of the fragmented nature of these markets. This gives Tyco a huge advantage, as its scale provides the production capacity for large projects and allows it to devote more resources to new product development. Being a larger company also gives Tyco a higher profile and brand recognition than its competitors, which facilitates attracting new customers. However it should be noted that many of its businesses have a heavily labor-intense component.

• Tyco's diverse portfolio and international focus can create problems: Because Tyco has a presence in several industries and many countries, it needs to appeal to consumers in all these markets, which may be extremely costly and take away from synergies between its segments. For example, sales growth in Europe was directly related to the depreciation of the dollar, which could tempt the company to expand European operations. But the dollar is volatile, and basing growth strategy on currency rather than a country's economic growth and infrastructure needs is a perilous strategy. Tyco risks being overextended and incurring too many unnecessary costs as a result.

• Tyco is susceptible to exchange rate volatility and political risk in foreign affairs: Tyco is heavily affected by fluctuations in exchange rates. Since half of Tyco's revenue comes from overseas, Tyco would prefer a weak dollar compared to other currencies like the euro. When the dollar is weak, Tyco's products will seem more attractive, and the company's revenue and income will do well. Other international factors, like foreign laws (which could be quite different from US regulations), different markets and consumer tastes, are all risk factors for a company heavily focused on international sales. Another potential issue is political instability and nationalization of industry in developing countries, which could hurt a private company like Tyco.

• Rising commodity prices may hurt Tyco's margins: Tyco is a large buyer of metals like steel. If steel prices rise, then Tyco's costs will rise. Tyco may not be able to pass the higher costs of materials onto customers, which would hurt performance.^[4]

Competition

Tyco competes with a few large companies and a host of smaller companies, including some overseas. Tyco's strategy is to look for ways to decrease costs of production and target specific markets where profitable opportunities exist, using its size to handle different types of products. Some of Tyco's biggest competitors in the United States are big conglomerates, including 3M and United Technologies. None of these companies compete with Tyco in all the fields Tyco is in.

• United Technologies (UTX) - UTC Fire & Security

While it is necessary to note who Tyco competes with in its segments, these companies often cannot compare to Tyco in size, so they were not included in the table. Below is a small sample of Tyco's many competitors in the US by segment:

• ADT Worldwide: Bosch Security Systems, Inc.; Protection One, Inc.
• Fire Protection Services: APi Group, Inc; Keystone Fire Protection Co.
• Flow Control: The Davidson Group; AP Supply Company
• Safety Products: Aearo Technologies; Top Safety Products, Inc.
• Electrical and Metal Products: Wheatland Tube Company; Continental Steel & Tube Company

References

1. ↑ ^{1.0 1.1} TYC 2009 10-K "General" pg. 1
2. ↑
3. ↑ TYC 2009 10-K "Segments" pg. 2-8
4. ↑ TYC 2009 10-K "Raw and Other Purchased Materials" pg. 9