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General Electric 2003 Annual Report
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Dear Fellow Stakeholders
The Environment We See
The GE Business Model
Building a Stronger Portfolio
GE’s Growth Strategy
The GE Team
Restoring Investor Trust
The Future
Financial Highlights

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Letter to Stakeholders,GE’s Growth Strategy

The best growth strategies take companies to places where only a few can follow. We are another year along with our five-initiative strategy to create high-margin, capital-efficient growth:

•  Technical Leadership
•  Services
•  Customer Focus
•  Globalization
•  Growth Platforms

The result of these initiatives will be a company that can achieve organic growth at twice the GDP with high margins and returns.

Technical Leadership, Expanding margins and growing the installed base - GO - Services, Optimizing customers' assets  - GO - Customer Focus, Building enduring relationships  - GO - Globalization, Multiplying every growth idea  - GO - Growth, Platforms Building positions in high-growth new markets  - GO - Our Growth Strategy
Technical Leadership
Technology and innovation are at the heart of our initiatives. Technical leadership produces high-margin products, wins competitive battles and creates new markets.

We have about 2,000 researchers in our Global Research Centers linked to market and customer needs and in constant dialogue with our businesses. In 2003, we completed several phases of a $100 million upgrade of our Global Research Center in Niskayuna, New York; opened a center in Shanghai; and broke ground for another in Germany.

Global Research continues to advance GE’s technical leadership. For instance, nanotechnology plays to GE’s traditional strength in materials; last year we filed 28 nanotechnology patents and made significant progress in the development of nano-metals, -ceramics and
-plastics that can enable a new generation of GE products. We can now imagine super-light alloys that could take half the weight out of some jet engine components and create substantial fuel efficiencies and cost savings.

As a company, we made great progress in energy efficiency. We introduced four leading products in 2003: the H System™ gas turbine; a 3.6-megawatt wind turbine; the GE Evolution™ Series locomotive engine; and the GE90-115B jet engine. These four products are 5–15% more energy-efficient than our current market-leading products. That is the equivalent of conserving 500 million barrels of oil each year. Such products, combined with our advanced hydrogen energy, photovoltaic and fuel cell research programs, put GE in the forefront of technical solutions to the problems of energy consumption and supply.

Technical leadership has created a massive installed base of more than 100,000 long-lived GE jet engines, power turbines, locomotives and medical devices for which we can provide high-margin services for decades. In 2003, our services revenues grew to $23 billion, up 10%. Our “annuity stream” from services has the potential to total more than $200 billion of revenue and more than $60 billion of profits between now and 2010.

But services only work if they make our customers more profitable. In the energy market, we have built an asset optimization business to improve customers’ energy efficiency, uptime and environmental performance. This year, our customer Norfolk Southern will begin operating with GE’s Precision Dispatch System™, the rail industry’s most comprehensive traffic management system, to improve locomotive availability and customer service. In Healthcare, more than 8,000 of our installed products have broadband connections. We use this technology to upgrade and repair our products remotely and proactively, creating more uptime and revenue for our customers.

Every year we find something new that leads to larger businesses. In 2003, it was Non-Destructive Testing (NDT). NDT applies the imaging technology embedded in our Healthcare business to preventive maintenance for our aviation, water, and oil and gas customers. We see tremendous growth ahead, as NDT can be included in half of our service agreements.

Customer Focus
We continue on our quest to make GE a truly great commercial company. Last year, we formed a sales and marketing council led by Beth Comstock and Dave Nissen, two of our best growth leaders. Their agenda includes: aligning our sales force with customer needs; taking Six Sigma to our customers; developing world-class marketing; driving sales force effectiveness; and serving global customers with excellence. I will remain personally involved with this effort to create a world-class commercial culture.

One of our successes is in “vertical selling,” the practice of aligning our offerings in four industries that are critical to GE: healthcare, energy, transportation and retail. They represent $47 billion of industrial revenues and $169 billion of financial services assets. GE brings a unique array of capabilities to these industries, including products, services, information and financing. On this broad foundation, we can build deeper partnerships with our customers.

This transformation is under way. In 2003, we signed a multiyear agreement with New York-Presbyterian Hospital to support them clinically and help them improve their business operations. We formed a $2 billion relationship with Emirates Airlines to help modernize their aircraft and make their assets and people more productive. We continued our strong relationship with Xerox, providing our financing and operating capabilities to help them improve their marketing efforts. In every case, dealing with “one GE” makes our customers more profitable.

We can take every growth idea and multiply its effectiveness through globalization. Globalization is a GE core competency. We have made and sold products outside the U.S. for 100 years, and one-third of our leadership team is global. Our global revenues were almost $61 billion in 2003, up 14%, and should grow 15% in 2004. We succeed because we recognize one central fact: Global growth requires more than simply shipping products. You must be equally committed to developing capabilities and relationships in the markets where you want to succeed.

This is critical to our strategy for China, where our revenues were $2.6 billion last year. China will invest $300 billion for infrastructure—energy, aviation, water and healthcare—in this decade. The 2008 Olympics in Beijing is one massive infrastructure project. GE can participate in every aspect of this growth, which makes us a particularly good partner for China. We have superior infrastructure technology at a competitive cost.

But we can also win because we have committed the breadth of GE to support Chinese customers. We have more than 1,700 sales and service people on the ground. We have built a Global Research Center in Shanghai to develop the capabilities of our Chinese suppliers and technology that we can use globally. We are training our own Chinese leaders and our customers in GE management techniques. We have local products that solve local needs. In other words, we are treating China exactly as we do developed markets such as the U.S., Japan and Europe.

This approach is also working in other developing markets. Revenues in Eastern Europe, Russia and Iraq should grow from $1.2 billion in 2003 to $5 billion in 2005. We recently signed a $700 million agreement to modernize the rail system in Russia and have an additional $2 billion of power project opportunities. Our Consumer and Commercial Finance profits in Eastern Europe are growing 30% annually. And more than half of Iraq’s power grid is GE technology. GE has the capabilities that Iraq will need as it rebuilds. We received $450 million of orders in Iraq in 2003, and we could receive $3 billion over the next few years.

Globalization is controversial today. In fact, it is viewed in some quarters as un-American. I am proud to be an American CEO of an American company. But growing GE requires us to view the world as our market. GE has several responsibilities in the pursuit of global trade. First and foremost, we must set high standards for behavior everywhere. Then we must give our customers everywhere the products and services that fit their needs. We must continue to give our employees everywhere the investments in technology and management training that make them competitive.

Will globalization result in the loss of jobs in developed economies? It probably will in low-tech industries that lack differentiation in the eyes of their customers. But in industries that are technically based and innovative, globalization will unlock decades of growth and jobs that create wealth. At GE we plan to bridge this global transition by being competitive in all of our businesses—a leader in innovation—and compassionate to employees who are impacted by change.

Growth Platforms
A key GE strength is our ability to conceptualize the future, identify “unstoppable” trends and develop new ways to grow. Last year, I told you about our thrusts in water, security and sensing, oil and gas, healthcare information technologies, Hispanic media and U.S. consumer finance. These are markets that have above-average growth rates and can uniquely benefit from GE’s capabilities.

We have built our industrial platforms to $7.7 billion of revenues in 2003 with an organic growth rate of 14%. We follow a disciplined process for growth. First, we segment broad markets and launch with a small platform acquisition. Then we transform the business model using our growth initiatives, such as services and globalization. Finally, we apply our financial strength to invest in organic growth or acquisitions. We can get big quickly while generating solid returns.

Our experience in Hispanic media is a great example. In 2002 we acquired Telemundo, a distant No. 2 in a fast-growing entertainment segment. We believed in the Hispanic demographic and felt the market would give us time to fix Telemundo’s business model. In 2002–03, we applied NBC’s management and programming expertise, and Telemundo went from purchasing 80% to producing two-thirds of its content. Telemundo underperformed while we were making these changes, but in the second half of 2003 we launched six new programs, and Telemundo’s ratings grew 50% over the first half of the year. Telemundo is now capturing more than 25% of the Hispanic ad market, and we see it growing revenues more than 20% in 2004.

In 2005, our industrial growth platforms should generate close to $10 billion of revenues with $1.5 billion of operating profit. Because they can grow at multiples of the GDP, they can increase the growth rate of the entire company by 1 to 2 percentage points.

Growth is the initiative, the core competency we are building at GE. To achieve this, we are developing a different kind of GE leader.

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*This is an interactive electronic version of GE’s 2003 Annual Report to Shareowners, and it is intended to be complete and accurate. The contents of this version are qualified in their entirety by reference to the printed version. A reproduction of the printed version is available in PDF format on this Web site.
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GE’s Growth Strategy

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