In Brief: General Electric

Categorized as an Industrial Conglomerate, GE tries to stay focused on areas with solid economic potential, believing “you have to find your own growth and make your own growth.”  General Electric has global operations in five segments:  Energy Infrastructure, Technology Infrastructure, NBC Universal, Capital Finance, and the Consumer & Industrial divisions.

In the Smart Grid space, GE still lags IBM and others as a thought leader. Despite its broad product line and its technical excellence, it has largely been seen as a Smart Grid laggard, a perception it is now laboring mightily to change. GE has formed a Smart Grid group to pull together many different products under a common theme.

Strengths

GE’s Smart Grid business lines should benefit from the parent company’s “ecoimagination” brand. That division, which includes green businesses such as wind turbines, solar cells, highly-efficient jet engines and train locomotives, and compact fluorescent light bulbs, generated $17 billion in revenue in 2008. Although ecoimagination is really just an amalgamation of existing businesses under a common label, the move established GE’s bona-fides as a cleantech leader.

Two bright spots in GE’s financials for 2009:

GE is pursuing contracts in nine countries, driven by government stimulus packages, that could add nearly $2 trillion in revenue during the next three years to its energy infrastructure division. 

Through GE Capital, GE is investing $4 billion in 2009 in energy projects, both for its own divisions and also in those of competitors.  This is down from $6 billion the prior year, but reflects a strong commitment given the orchestrated reduction in GE Capital’s balance sheet.

GE has some tired products badly in need of updates (see below). In general, however, it has many pockets of technical excellence. In particular, its metering and distribution automation solutions are under-rated, we believe.

Challenges

Though GE has a wide range of products relevant to the Smart Grid, those products tend to be point solutions. It has not yet succeeded in creating an overall “ecosystem” view of its own product lines to tell a merged, coherent story.

Some of GE’s products were acquired and are still sold under the old brand names, a tactic that makes GE’s Smart Grid business feel like a collection of hand-me-downs rather than a consistent, interoperable set of solutions. And some of those products are getting tired. GE’s Smallworld GIS technology, for instance, doesn’t seem to be keeping pace with a world that includes Google Maps.

The remaining challenges to the Smart Grid business line relate to the struggles of the parent company. GE was forced to cut its dividend from 31 cents to 10 cents per share quarterly on Feb. 27, 2009 to preserve cash. Standard & Poor and Moody’s both cut their credit ratings on GE a month later.  This was another negative for investors.

GE cut its workforce by 9% this year from nearly 330,000 to 300,000 to reduce costs in the face of lower revenues. Hardest hit is the Capital Finance division which has contributed 37% of revenues until recently.  Compound that with negative trends in the Consumer and Industrial and NBC Universal units and the recessionary impact hits 53% of GE’s revenue sources.

Long-term debt to equity ratio is high for GE at 41.3% compared to the sub-industry category that it belongs to which is approximately 2.2%.

Our View

Redirected spending to growth areas is a mandate for GE, and management is focusing on high-growth sectors. Fortunately for Smart Grid proponents, those sectors include energy and infrastructure and transportation that should outperform the global economy over time.