The Strategist

GE keeps scaling back to boost profitability

12/15/2016 - 14:01

General Electric (GE) company plans to gain $ 4 billion through sale of its two industrial units, and is going to achieve a cost reduction of $ 1 billion. The company is taking these steps within a programme of increasing profitability by reducing volume of activity. The two divisions, sale of which was announced during a presentation to financial analysts are Industrial Solutions, which provides equipment for power distribution industry, and GE Water. Annual revenues from activities of the two divisions amounted to $ 5 billion.

GE has been selling non-core assets during the past three years. According to the company’s CEO Jeff Immelt, GE can grow faster if it focuses on production of equipment for the heavy industry and software services. "We have made the company simpler. We have made the company more profound"- he said at the presentation. Mr. Immelt also told analysts that the company expects to receive an operating profit of $ 19 billion and revenues of $ 135 billion in 2017.

General Electric is changing its strategy and focusing on new industries. Earlier in November, the company announced acquisition of ServiceMax, a software developer for field staff, for nearly $ 1 billion. This transaction makes the buyer a direct competitor to such IT giants as Microsoft, Salesforce and Oracle.

Under the agreement, General Electric will pay 915 million dollars for acquisition of ServiceMax. The transaction will be closed in January 2017. The purchased company will become part of GE Digital unit dedicated to development of industrial software. The corporation predicts that volume of GE’s Digital business will reach $ 15 billion by 2020.

General Electric has developed Predix operating system, which makes industrial equipment more reliable and efficient. Purchase of ServiceMax will accelerate commercialization of Predix-based applications by combining industrial product portfolio of General Electric and ServiceMax’s experience in field service, said Deane Dray, an analyst at RBC Capital Markets.

ServiceMax offers cloud solutions for customer service and field maintenance. These systems help carry out maintenance and repair of equipment at customer facilities, create new work orders and manage schedule of repair techniques. Products ServiceMax are used in more than 400 companies, including Coca-Cola and Tyco. Throughout its history, ServiceMax attracted a total of 202 million dollars in investments, says Fortune.

According to reviewers, purchase of ServiceMax marks for General Electric entry into competition with the major IT companies. introduced its software for the field staff in March 2016, Oracle launched a similar cloud services with acquisition of TOA Technologies in July 2014. In the middle of 2015, Microsoft acquired ServiceMax’s competitor - FieldOne Services company, which sells software to large customers such as United Technologies and Mitsubishi-Hitachi Power Systems.

Deal with ServiceMax became the third major acquisition of General Electric in recent years. Besides the previously mentioned company, General Electric has acquired Wurldtech and developer of software for control of work equipment Meridium.


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