General Electric Co. (IW 500/6) is developing software operations in each of its business lines with the goal of building a $15 billion franchise under Chief Executive Officer Jeffrey Immelt’s plan to create a “digital industrial” company.
“We are a company that invests in broad industrial transitions, and they don’t come much bigger than the full application of data and analytics to machines and systems,’’ Immelt said in a shareholder letter released on February 29. “Our digital industrial capabilities will expand our growth rate, improve our margins and bring us closer to our customers.’’
Building out a software business is the next piece in Immelt’s dramatic transformation of GE that includes the sale of the bulk of the GE Capital lending arm. In addition to unloading about $100 billion in finance assets last year, GE completed the acquisition of Alstom SA’s power generation operations to deepen its bet on the energy markets.
With his annual address, Immelt made a case for GE’s growth prospects in an economy that is “long on volatility and short on economic leadership.” To remain competitive, he said GE will fund a record level of restructuring this year and aggressively manage costs to capitalize on deflation.
“GE should be a safe investment in a sea of volatility,” he said.
A bright spot for GE has been the effort to marry data and equipment to improve productivity. Software revenue is growing 20% a year with sales of $5 billion, Immelt said. By the end of 2016, GE software will be used to monitor about 200,000 pieces of heavy-duty machinery, he said.
GE released the Predix software platform in 2015 with the aim of creating businesses generating at least $1 billion of digital-related sales in each of the company’s industrial manufacturing units. Immelt, who repeated his goal of growing into a top 10 software company by 2020, cited examples such as its power division, which can use Predix applications to create as much as $230 million of additional value for power-plant customers.
GE’s shares rose 23% last year, outpacing the 0.7% drop in the Standard & Poor’s 500 Index. The stock got a boost in October when Nelson Peltz’s activist firm Trian Fund Management LP said it had taken a $2.5 billion stake.
“I don’t think activists are necessarily bad for companies,’’ Immelt said. “They are able to take a fresh look. We like having smart investors in the stock, even when they have a point of view.’’
GE overhauled its portfolio in the past year, closing the Alstom deal after an extended antitrust review by European authorities. More recently, GE agreed to sell its appliances business to China’s Qingdao Haier Co. for $5.4 billion after U.S. regulators opposed an earlier deal between GE and Electrolux AB.
Immelt criticized the relationship between business and government, calling it “the worst I have ever seen.’’
“Most government policy is anti-growth,’’ he said. “In the U.S., we want exports but seem to hate trade and exporters; globally, governments love small businesses but then regulate them to death.’’