Speaking at an annual gathering of industrial executives, Wall Street analysts and investors Wednesday in Florida, GE Chairman and CEO Jeff Immelt outlined GE’s strategy as a simplified, digital industrial company with an increased focus on digital and additive technologies like 3D printing.
During his presentation at the Electrical Products Group Conference in Longboat Key, Florida, Immelt reaffirmed GE’s operating framework for the year and illustrated how the company is increasing productivity and gaining market share in a tougher global environment. Immelt added that GE’s cash and capital allocation goals remained on track for 2017. Last quarter, GE’s cash performance was below expectations, but the company expects sequential improvement in cash flow from operating activities throughout the year. GE made no change to its original cash targets for 2017.
In addition to its operating framework and focus on cash, GE is committed to expanding margins and simplifying the company. In the first quarter, GE was $200 million ahead of its original plan to reduce costs throughout the company.
By 2018, GE expects to cut $2 billion in structural costs, with about 100 basis points of margin expansion and 3-5 percent organic growth per year. To date, GE has kicked off several significant actions to reduce the cost of its operations, and the company already is seeing lower costs from optimizing its newest technologies like the H-turbine. Making a more focused company will help GE be more profitable and competitive, Immelt said.
GE also is focusing on improving supplier productivity in its industrial businesses. GE acquired LM Wind Power and combined its engineering and supply chain capacity with one of the world’s largest wind turbine manufacturers. GE Aviation also acquired AirVault, a supplier for cloud-based digital records management, which will boost GE’s asset management and maintenance optimization for its aviation arm.
In the oil and gas sector, GE plans to combine GE Oil & Gas with Baker Hughes to build a new fullstream digital industrial services company. With about $1.6 billion in growth and cost synergies expected by 2020, the new company – a combination of GE’s technology expertise and Baker Hughes’ service capabilities – is uniquely positioned to deliver fullstream solutions to the market, Immelt said. The deal is expected to close in mid-2017.
Throughout the presentation, Immelt highlighted the strength of GE’s portfolio, pointing to innovative products in aviation, power, healthcare and wind. He emphasized that the company’s record $240 billion long-term services backlog brought a number of benefits to GE and its customers, including predictable maintenance costs, higher margins and returns, and more comprehensive services.
For these products and services, digital and additive technologies are changing the way GE operates across its industrial businesses. Earlier this year, GE acquired ServiceMax – a company that brings GE a new set of software and expertise in cloud-based field service management across industries. Last year, GE acquired Concept Laser and Arcam AB – two leading industrial additive companies – to help GE and other customers make more 3D-printed parts and increase productivity. These machines use a combination of software, digital design and additive materials like metal powder to create parts and structures not possible with traditional manufacturing. The GE Store, which is the transfer of technology, expertise and talent across GE’s businesses, allows businesses like Aviation, Healthcare and Oil & Gas to share some of these technologies, Immelt said.
GE’s customers have noticed the company’s progress in digital and additive manufacturing. Recently, the Port of Los Angeles launched a first-of-its-kind pilot program to digitize shipping data. In Europe, GE is creating a self-aware, digitized fleet of 250 locomotives to optimize freight schedules. Over the weekend, GE announced a $15 billion memoranda of understanding and agreements with Saudi Arabia, including data analytics initiatives across its multiple industries. Approximately $7 billion of these announcements are GE technology and service solutions. In April, GE signed a $3 billion deal with Sonelgaz in Algeria to bring power to 8 million Algerian homes. As the largest services deal in GE Power’s history, it also marks the second-largest Industrial Internet software deal for the business. These are important milestones for GE, and the company is executing its digital industrial strategy, Immelt said. With this strategy, GE will create value for its shareowners, customers and employees, he concluded.