Otis Worldwide: Navigating China's Challenges While Building a Resilient Global Flywheel

Otis Worldwide Corporation (OTIS) has long been a bellwether for global infrastructure demand, but its recent financial results paint a nuanced picture of opportunity and risk. While China's property market slump has dented new equipment sales, the company is leveraging its service-driven business model and geographic diversification to transform volatility into value. For investors, the key lies in understanding how Otis is recalibrating its exposure to China while fortifying its global footprint—a strategy that could unlock long-term gains even in uncertain times.

China's Headwinds: A Mature Market in Transition

China, once a growth engine for Otis, now represents a “mature market” with structural challenges. The property sector's 40% decline from its peak has led to a sharp drop in new elevator orders. In Q2 2025, new equipment sales in China fell by over 20%, and the backlog for modernization orders grew by 19% at constant currency. Yet, this isn't a story of retreat—it's a pivot. Otis is capitalizing on the modernization boom, with 12% and 22% growth in modernization orders in Q1 and Q2 2025, respectively.

The shift makes sense. As China's urban infrastructure ages, demand for retrofitting and energy-efficient upgrades is surging. Otis's service segment in China has demonstrated resilience, with 6% organic sales growth in Q2 2025 and a 40-basis-point margin expansion. This pivot from new equipment to modernization reflects a broader trend: mature markets are becoming less about construction and more about maintenance and sustainability.

The U.S. as a Stabilizing Force

While China's slowdown is a headwind, Otis's U.S. operations offer a counterbalance. In Q2 2025, the U.S. Service segment delivered 4% organic growth, driven by robust maintenance and repair demand. The U.S. market, with its aging infrastructure and regulatory focus on safety, provides a stable base for recurring revenue. For context, Otis's U.S. service backlog has grown steadily, reflecting the “flywheel” effect of its service-driven model.

This stability is critical. As geopolitical tensions and trade tariffs weigh on global markets, the U.S. offers a predictable environment for earnings. Otis's U.S. Service segment also benefits from higher pricing power and margin resilience. In Q2 2025, the Service segment's operating margin expanded to 24.9%, outperforming the New Equipment segment's 5.3% margin. This contrast underscores the strategic advantage of a service-centric business model in mitigating cyclical risks.

Geographic Diversification: Spreading the Bet

Otis's geographic diversification strategy is another pillar of its risk mitigation. Beyond the U.S., the company is expanding into high-growth markets like Egypt, Poland, and Singapore. For example, its involvement in Egypt's Belt and Road rail project and its partnership with SMRT Trains in Singapore highlight its ability to secure infrastructure contracts in diverse regions. These initiatives reduce overreliance on any single market and tap into global urbanization trends.

Emerging markets are particularly attractive for Otis. Southeast Asia, Latin America, and the Middle East are experiencing rapid urbanization, driving demand for both new equipment and modernization. In Q4 2024, modernization orders grew 18% globally, with Otis's backlog increasing by 13% at constant currency. This pipeline of high-margin work provides a buffer against China's near-term challenges.

Strategic Initiatives: From Cost Savings to Long-Term Value

Otis is also leveraging operational initiatives to strengthen its position. The China Transformation Program aims to generate $30 million in annual savings by 2025 through cost reductions and operational streamlining. Meanwhile, the UpLift program is expected to deliver $200 million in run-rate savings by 2025, further bolstering margins.

Investors should also note Otis's disciplined approach to capital allocation. The company has authorized a $2 billion share repurchase program and increased its dividend to $0.42 per share, signaling confidence in its cash flow generation. With $1.6 billion in adjusted free cash flow in 2024, Otis is balancing reinvestment in growth (e.g., digitalization, AI-driven solutions like Gen3 elevators) with shareholder returns.

The Investment Thesis: Balancing Risks and Rewards

For investors, the key question is whether Otis's strategic shifts can offset its China exposure. The answer lies in its ability to monetize its 22 million installed units globally and its pivot to service and modernization. While new equipment sales in China are expected to decline 1–4% in 2025, the Service segment's 5–7% growth outlook and margin expansion provide a counterweight.

Moreover, Otis's geographic diversification and U.S. earnings stability reduce the risk of a single regional downturn. The company's focus on sustainability and digital innovation (e.g., ReGen™ Drive systems, Gen3 elevators) also aligns with long-term trends in infrastructure demand.

Final Take

Otis Worldwide is navigating a complex macroeconomic landscape with a mix of pragmatism and foresight. While China's property market slump is a near-term drag, the company's service-driven model, U.S. resilience, and global diversification create a robust foundation for long-term value. For investors willing to look beyond short-term volatility, Otis's strategic recalibration offers a compelling case for growth in an era of global uncertainty.