* To unveil new service push on Thursday
* Move could help GE reach Immelt's margin goals-analyst
* Company eyes $50 bln-$60 bln in service revenue by 2015
By Scott Malone
Nov 28 General Electric Co plans to
unveil on Thursday a new push into service businesses, with a
series of programs to help airlines, railroads and hospitals
that use its heavy equipment operate more efficiently.
The drive is part of the largest U.S. conglomerate's effort
to boost its margins and make more money in a sluggish economy,
as sales of services are more profitable equipment than sales of
jet engines, locomotives and other equipment.
GE's pitch is that by tweaking how they operate, its
customers can cut their own costs. For example, a 1 percent cut
in the amount of fuel the global aviation industry uses could
generate $30 billion in total savings, GE estimates.
Investors said the company's service business has been more
stable in uneven economic times than equipment sales. Last year
GE's service business, including maintenance to its products,
generated $42 billion in revenue, approached half GE's
"Given the environment, some of the uncertainties, etc.,
services is an area that plays for the long term because of
the...ongoing desire from customers for new levels of
productivity," said Steve Bolze, the chief executive officer of
GE's power and water business, who is also heading up the
company's services push.
The company is developing software systems that analyze data
on how its turbines and other equipment are used to find ways to
run them more efficiently and at lower cost, Bolze said. It
plans to discuss them at an event in San Francisco on Thursday.
GE said it has lined up customers for its new services
including: U.S. railroad Norfolk Southern Corp, low-cost
carrier AirAsia Bhd and drug and medical device maker
The drive is part of Chief Executive Jeff Immelt's push to
raise GE's profit margins by 0.5 percent to 0.7 percent of sales
next year, a rise investors expect would propel the company's
industrial operating profit to about 16 percent of sales, up
from 14.9 percent in 2011.
"Growing margins into the future is a big credibility point
for the leadership team and one we take seriously," Immelt told
investors at a September meeting held at the company's training
campus in Crotonville, New York.
GE also said at the meeting that it expects services revenue
to grow by 5 percent to 10 percent a year over the next few
years, reaching $50 billion to $60 billion by 2015, with the
service backlog forecast to rise to $175 billion from $153
billion at the end of the third quarter.
During the 2007-2009 recession, service contracts played an
important stabilizing role in sales at GE and peers including
United Technologies Corp, analysts noted.
"Increasing exposure to strong incremental margin businesses
like services can help the company reach its margin targets in
an environment where you may not get the same kind of
manufacturing productivity leverage that you have in a
higher-growth environment," said Daniel Holland, an analyst at
Morningstar in Chicago who covers GE.
Fairfield, Connecticut-based GE has been ramping up its
software focus since last year, when it hired former Cisco
Systems Inc executive Bill Ruh to build a
data-analytics center in San Ramon, California.