Change on the Horizon for GE

2018 was not a great year for General Electric (GE), the travails of which are well documented. Continuing poor performance in its power division shows little sign of abating. CEO John Flannery was ousted in October 2018 after only 14 months in the job, failing to reverse the fortunes of GE’s spiraling share price. Its shares are currently trading around the $7 mark, down considerably from $19 highs in January 2018, and way below the $32 each share commanded in mid-2016. However, some analysts now believe that GE’s share price has absorbed all the bad news and now reflects its true value.

GE’s Prospects

GE is still underperforming its competitors; we should expect further changes at the business. GE ended 2018 with an announcement regarding its plans for its software business. In September, I reported that rumors surrounding the future of Predix—particularly those that suggested a full sale—were somewhat overblown. Three months ago, GE said its preferred strategy was to seek a co-investor in its digital assets—Predix in particular—rather than an outright sale.

Now the company has made an announcement regarding its software assets: it will create a new Industrial Internet of Things (IIoT)-focused software business. The new subsidiary will be independent, but wholly-owned. It will have a new brand and identity; it will have its own equity structure and board of directors. The new business will own significant assets, which currently generate around $1.2 billion revenue. GE’s Predix platform, asset performance management, historian, automation (HMI/SCADA), manufacturing execution systems, operations performance management, and the GE Power Digital and Grid Software Solutions businesses. These last two businesses include GE’s ADMS, OMS, DERMS, EMS, and the Smallworld GIS applications.

At the same time, GE also announced it was selling its ServiceMax field service scheduling software to software investor Silver Lake. While GE will remain a strong partner and reseller of ServiceMax, the sale marks a climbdown for GE as it acquired ServiceMax only 2 years ago.

What Does This Mean for Customers?

Should customers be worried about this restructure? Of course, any change can be unsettling. However, for an outside observer with no insight into the accounts or sales pipeline, this looks a positive step for GE. Because where would I rather be right now in GE: in a stand-alone software business with a suite of products focused on high growth IIoT markets, or GE Power where profits may be suppressed for years to come?

A separate equity structure and board of directors frees software from the rest of the GE business. It brings together previously disparate assets with a diffuse management structure into one organization. It can more easily set its own strategy, and use the complete portfolio of software assets. GE’s IIoT customers are undergoing a digital transformation that will see them increasingly become platform providers. By bringing all its software assets under a common management structure, it should serve these customers better, provided GE enables cross-selling of software alongside equipment or maintenance contracts.

With a separate equity structure, the new software company is open to co-investment, sale, or IPO. If GE’s troubles continue, these options become more likely. However, the portfolio remains compelling and will likely succeed regardless of ultimate owner.