Otis Looks to Upgrades, Takeovers in Stagnant Southern Europe

United Technologies Corp. (UTX)’s Otis is turning to elevator-software installations and expanding its share of maintaining southern Europe’s existing 1.7 million lifts amid stagnant demand for new equipment.

Margins are under pressure and Otis will need to improve profitability to extend a three-year run of earnings growth, Otis President Pedro Baranda said in an interview.

The elevator market in Spain and Italy, which together have more lifts anywhere outside of China, is down about 75 percent since a 2008 peak, hurt by lower state spending, Baranda said. The once dominant markets for new equipment are now characterized by overcapacity, forcing Otis to shrink its new installations business, he said.

“In other countries it was a V downturn: this looks like a U or a W downturn,” Baranda said. “It’s been bad since 2008.”

Baranda sees weak construction markets driving more consolidation, and Otis will seek out those companies in Italy and Spain squeezed out by the slowdown to expand its portfolio of maintained lifts. At the same time, the United Technologies unit will make its own cutbacks to operations in southern Europe, Baranda said.

In Spain, where Otis has 14 percent of its installed elevators, the manufacturer wants to modernize lifts with energy-saving software and other products such as a computer program that can allow maintenance to be carried out remotely.

“That’s where we have to focus in these years where there will be no construction,” Baranda said.

Otis competitor Schindler Holding AG (SCHP) is moving ahead with its own technology, a traffic management system targeted at office blocks as it continues a restructuring program that brought 800 job cuts in weakened European markets last year.

To contact the reporter on this story: Patrick Winters in Zurich at pwinters3@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net