Honeywell Quantum Solutions And Cambridge Quantum Computing Merge With Go-Public In Mind

Honeywell trapped ion system HONEYWELL

Quantum computing just got more interesting today. 

Today, Honeywell Quantum Solutions (HQS) announced it is being spun off from Honeywell International in a planned merger with Cambridge Quantum Computing. We believe the combined company could go public by as soon as the end of the year. IonQ, a 2015 quantum computing startup, recently announced it will be going public. The quantum market is hot and the HQS-CQC merger could be a big opportunity.

HQS began in 2018 as a business unit of Honeywell International, a $32 billion conglomerate. Honeywell operates in aerospace, building technology, performance materials and technologies, and safety and productivity solutions. HQS’ quantum computer hardware uses trapped-ion technology. You can read more about its technology here.

Cambridge Quantum Computing (CQC) is a quantum software company founded by Ilyas Khan in 2014. CQC develops quantum software for many disciplines, including quantum chemistry, quantum machine learning, and quantum augmented cybersecurity. CQC has operations in the United States, Europe & Japan. It has over 60 quantum research scientists that include 35 PhDs specializing in quantum computing, chemistry, molecular electronics, physics, mathematics, computer science, and nanoscience. CQC has obtained a total of $72.8 million in funding since it began. The company’s valuation is approximately $450 million.

The deal and the people

Honeywell International will invest between $270 million to $300 million in the new company with about 55% ownership. Honeywell also gets a long-term agreement to help manufacture ion traps used by HQS.

The new company’s name will be announced later. Both boards have approved the deal, and pending necessary approvals, the arrangement should close sometime during the third quarter of 2021. 

Honeywell Chairman and CEO Darius Adamczyk will serve as chairman of the new company.

Ilyas Khan, the current CEO and founder of CQC will become CEO of the new company. Before CQC, Khan was the founding Chairman of The Stephen Hawking Foundation. He is a Fellow of St. Edmund’s College at the University of Cambridge and the Leader in Residence at the Judge Business School. He was instrumental in establishing the Accelerate Cambridge program of investment in early-stage Cambridge-based technology sector companies.

Honeywell Chairman and CEO Darius Adamczyk talk with Moor Insights & Strategy CEO Patrick Moorhad and Futurum Research’s Daniel Newman about the deal. 
 
PATRICK MOORHEAD

Tony Uttley, president of HQS, is slated to become president of the newly formed company. Uttley has held many senior executive positions within Honeywell before becoming president of HQS. Before Honeywell, Uttley was a principal at the Boston Consulting Group. He has an MBA from the Kellogg School of Management at Northwestern, a master’s degree in management of technology from the University of Houston, and a bachelor’s degree in mechanical engineering from the University of Minnesota. Our principal, Patrick Moorhead, wrote about Uttley here

Why Honeywell is spinning off HQS

According to the Honeywell press release, Darius Adamczyk, chairman and CEO of Honeywell, said, “Since first announcing Honeywell’s quantum business in 2018, investors have been clamoring for an opportunity to invest directly in Honeywell’s quantum business. The new company will provide them with an ideal avenue to do so. This move is the best way to onboard new, diverse sources of capital at scale that will help drive rapid growth.”

Adamczyk was correct. Investors are very interested in quantum. A few months ago, when IonQ announced it would go public, there was high investor demand. Rather than an IPO, IonQ chose to merge with dMY Technology Group III, a special-purpose acquisition company. According to the terms of the arrangement, IonQ will get $650 million in cash and 64% of the new company’s equity. 

Quantum needs long-term funding 

A startup quantum computer company needs significant initial funding to staff, house, develop, and build a quantum computer.  However, that is not the most significant funding requirement. A startup also needs an ongoing source of adequate funding to give it a high probability of long-term success. That is because today’s quantum computers are prototypes. At the current stage of development, it will take years to make quantum computers suitable for commercial, revenue-producing applications.  

Currently, we simply do not have the technical know-how to scale a quantum computer beyond a few hundred qubits. Performing useful complex computations in a production environment requires millions of qubits.

The financial requirements to fund research necessary to move us from a quantum machine with few hundred qubits to one with millions of qubits is enormous. Most experts believe it will take another five to ten years before we can build useful, large fault-tolerant quantum computers.  

Both HQS and CQC have long-term technology roadmaps. The newly merged company of HQS and CQC will have access to financial resources needed to develop and execute those plans.  As a business unit of Honeywell, HQS only had access to internal financing from its parent company.

Benefits 

Combining HQS and CQC will make the new entity stronger and more attractive to investors. It is also important that the merger will also put the new company in a position where it can consider a future public offering. As a Honeywell business unit, HQS did not have that option.  

Honeywell International remains a great source of broad technical expertise for the new company. It has resources for software, electrical and mechanical engineering, optical systems, physics, vacuum engineering, and precision controls. Other than IBM, no other company has that collective expertise. In a field where it may take a decade or more before success is found, you cannot put a value on resources like that. 

Analyst Notes:

1.)         HQS was originally formed because a.) Honeywell corporate believed that quantum computing would eventually be needed by most customers in its four business segments; b.) Honeywell already had manufacturing experience across multiple disciplines needed to build a trapped-ion quantum computer; c.) Honeywell had an existing deep pool of PhDs and technical resources needed to build a quantum computer; d.) Honeywell had previous experience with trapped-ion technology when it conducted research in 2014 for Intelligence Advanced Research Projects Activity (IARPA).

2.)         Honeywell is currently invested in Cambridge Quantum Computing through its venture capital fund.

3.)         Over the past several years, there have been a number of joint research projects between CQC and HQS. 

4.)         Post-merger, expect the new company will add more functionality to its trapped-ion quantum computer. We should see more zones and more qubits added. It will need to do this to remain competitive. It is possible it will announce a move to the HQS next-generation H2 quantum computer

5.)         I expect to see more cloud access added to the new company’s quantum machine. Right now, out of three major cloud platforms consisting of Google, AWS, and Azure, HQS only uses Azure. 

6.)         If Honeywell’s long-term agreement to manufacture ion traps used by HQS is optional, then it is favorable for the new company. If it is a lock-in, then it may not be in the best interest of the new company.