https://www.nytimes.com/2017/12/07/business/general-electric-power-jobs.html
G.E. Cuts Jobs as It Navigates a Shifting Energy Market
By TIFFANY HSU and CLIFFORD KRAUSSDEC. 7, 2017
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General Electric, a conglomerate with stakes in sectors from light bulbs to jet engines, is working to streamline its operations under its new chief executive, John Flannery. Credit Richard Drew/Associated Press
General Electric is racing to keep pace with seismic shifts in the global energy industry, as its new leadership moves to eliminate bloat and grapples with the fallout from earlier, ill-timed decisions.
In one of the most visible moves, the company said on Thursday that it would cut 12,000 jobs in its power division, reducing the size of the unit’s work force by 18 percent.
The announcement is an acknowledgment that the company has not been properly positioned for where the energy market is headed. Oil and natural gas markets are dealing with a glut of supply and companies like General Electric have been forced to cut prices on their services. The long-term demand for renewable energy is growing globally, even as the American political climate damps its short-term prospects. And G.E. faces a raft of competition from international rivals in all those areas.
Just look at the company’s business for the big turbines at the heart of electricity-generating plants. Although more coal is being burned and shipped this year in much of the world, the trends favor renewable sources, where production costs are rapidly falling. Fewer coal and gas-fired power plants are being built, leaving more companies fighting over fewer projects. The result: G.E. is sitting on a pile of excess inventory.
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The global forces are roiling many big conglomerates that have long served the industry. Siemens, G.E.’s main rival, said last month that it would cut 6,900 jobs worldwide in units focused on power plant technology, generators and large electrical motors. “The power generation industry is experiencing disruption of unprecedented scope and speed,” Siemens said in a statement at the time.
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G.E. and its new chief executive, John L. Flannery, have been under pressure broadly to remake the company. The company’s stock has plunged more than 40 percent this year, the worst performance by far on the Dow Jones industrial average. The company reported a steep decline in profit for the third quarter.
Last month, Mr. Flannery announced plans for a slimmer, more focused G.E. concentrated on three core businesses — energy, health care and aviation. The move is a departure from the empire-building ambitions of past chief executives who sought to create a vast conglomerate across disparate industries.
As part of the overhaul, Mr. Flannery has demanded more financial discipline, with plans to shed nearly $20 billion in assets in the coming years, including some that reach back to the days of its founder, Thomas Edison, like light bulbs and railroad locomotives. The company also cut its dividend for only the second time since the Great Depression.
Mr. Flannery, who took over in August, has called 2018 a “reset year.”
“Flannery’s moves are the obvious, basic ones that he needs to play to turn G.E. around,” said Robert McCarthy, an analyst at the research firm Stifel. “If this doesn’t work, it could presage a larger breakup of the company.”
The company, in part, is paying for past mistakes.
Two years ago, G.E. spent $13.5 billion to buy the power division of Alstom, a French company. The unit, G.E.’s largest industrial acquisition at the time, has since then “clearly performed below our expectations” and offered only single-digit returns, Mr. Flannery told investors in a conference call last month.
But the Alstom unit “is also an asset that has a 20-, 30-, 40-year life to it,” said Mr. Flannery, who helped negotiate the acquisition.
G.E. also recently merged its oil-and-gas unit with a fellow services provider, Baker Hughes, to strengthen the business during the worst slump in the industry in more than two decades.
Now, Baker Hughes is underperforming rivals. And analysts said that G.E. may be looking for ways to exit the marriage.
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G.E. is at the forefront of gas turbine technology and has a new line of large power generators that can each produce enough energy for 500,000 households. But the company misjudged the market for smaller and replacement equipment. Mr. Flannery told investors that the company had exacerbated a tough market situation “with some really poor execution.”
Russell Stokes, the head of the company’s power division, has told investors that he planned to cut back the division’s capital expenditures next year to nearly half its current level. His team, he said, will be “sweating every dollar.”
“There’s no doubt that the market has been soft, but they’re not telling every side of the story — that clearly there have been bad decisions made at the organization and about how they were going to market in select businesses,” Mr. McCarthy of Stifel said.
General Electric is also trying to navigate the energy future.
By 2024, solar and wind energy technology is expected to attract two-thirds of global investment in power plants and account for as much as 40 percent of total power generation by then, according to the International Energy Agency. As such renewables take hold, natural gas is likely to be pushed from a primary role to a supporting role when the wind does not blow and the sun does not shine.
G.E. has carved out a space in renewable energy, producing wind turbines. But it faces significant price pressure from competitors, particularly in China.
All the while, demand for power is rising more slowly than in the past, owing to the improved efficiencies of appliances and commercial buildings increasingly engineered to save electricity. Power demand growth in China, for instance, has slowed to less than 2 percent a year since 2012 from 8 percent a year from 2000 to 2012.
G.E. said the job cuts in the power business would help it save $1 billion as it moved to reduce costs by $3.5 billion this year and next. The employees losing their jobs work in production and professional roles. About half are based in Europe.
“This decision was painful but necessary for GE Power to respond to the disruption in the power market,” said Mr. Stokes. “We expect market challenges to continue, but this plan will position us for 2019 and beyond.”
Tiffany Hsu on Twitter: @tiffkhsu. Clifford Krauss on Twitter: @ckrausss
Prashant S. Rao contributed reporting
G.E. Cuts Jobs as It Navigates a Shifting Energy Market
By TIFFANY HSU and CLIFFORD KRAUSSDEC. 7, 2017
Continue reading the main story Share This Page
Photo
General Electric, a conglomerate with stakes in sectors from light bulbs to jet engines, is working to streamline its operations under its new chief executive, John Flannery. Credit Richard Drew/Associated Press
General Electric is racing to keep pace with seismic shifts in the global energy industry, as its new leadership moves to eliminate bloat and grapples with the fallout from earlier, ill-timed decisions.
In one of the most visible moves, the company said on Thursday that it would cut 12,000 jobs in its power division, reducing the size of the unit’s work force by 18 percent.
The announcement is an acknowledgment that the company has not been properly positioned for where the energy market is headed. Oil and natural gas markets are dealing with a glut of supply and companies like General Electric have been forced to cut prices on their services. The long-term demand for renewable energy is growing globally, even as the American political climate damps its short-term prospects. And G.E. faces a raft of competition from international rivals in all those areas.
Just look at the company’s business for the big turbines at the heart of electricity-generating plants. Although more coal is being burned and shipped this year in much of the world, the trends favor renewable sources, where production costs are rapidly falling. Fewer coal and gas-fired power plants are being built, leaving more companies fighting over fewer projects. The result: G.E. is sitting on a pile of excess inventory.
Advertisement
Continue reading the main story
The global forces are roiling many big conglomerates that have long served the industry. Siemens, G.E.’s main rival, said last month that it would cut 6,900 jobs worldwide in units focused on power plant technology, generators and large electrical motors. “The power generation industry is experiencing disruption of unprecedented scope and speed,” Siemens said in a statement at the time.
Continue reading the main story
Advertisement
Continue reading the main story
G.E. and its new chief executive, John L. Flannery, have been under pressure broadly to remake the company. The company’s stock has plunged more than 40 percent this year, the worst performance by far on the Dow Jones industrial average. The company reported a steep decline in profit for the third quarter.
Last month, Mr. Flannery announced plans for a slimmer, more focused G.E. concentrated on three core businesses — energy, health care and aviation. The move is a departure from the empire-building ambitions of past chief executives who sought to create a vast conglomerate across disparate industries.
As part of the overhaul, Mr. Flannery has demanded more financial discipline, with plans to shed nearly $20 billion in assets in the coming years, including some that reach back to the days of its founder, Thomas Edison, like light bulbs and railroad locomotives. The company also cut its dividend for only the second time since the Great Depression.
Mr. Flannery, who took over in August, has called 2018 a “reset year.”
“Flannery’s moves are the obvious, basic ones that he needs to play to turn G.E. around,” said Robert McCarthy, an analyst at the research firm Stifel. “If this doesn’t work, it could presage a larger breakup of the company.”
The company, in part, is paying for past mistakes.
Two years ago, G.E. spent $13.5 billion to buy the power division of Alstom, a French company. The unit, G.E.’s largest industrial acquisition at the time, has since then “clearly performed below our expectations” and offered only single-digit returns, Mr. Flannery told investors in a conference call last month.
But the Alstom unit “is also an asset that has a 20-, 30-, 40-year life to it,” said Mr. Flannery, who helped negotiate the acquisition.
G.E. also recently merged its oil-and-gas unit with a fellow services provider, Baker Hughes, to strengthen the business during the worst slump in the industry in more than two decades.
Now, Baker Hughes is underperforming rivals. And analysts said that G.E. may be looking for ways to exit the marriage.
Advertisement
Continue reading the main story
G.E. is at the forefront of gas turbine technology and has a new line of large power generators that can each produce enough energy for 500,000 households. But the company misjudged the market for smaller and replacement equipment. Mr. Flannery told investors that the company had exacerbated a tough market situation “with some really poor execution.”
Russell Stokes, the head of the company’s power division, has told investors that he planned to cut back the division’s capital expenditures next year to nearly half its current level. His team, he said, will be “sweating every dollar.”
“There’s no doubt that the market has been soft, but they’re not telling every side of the story — that clearly there have been bad decisions made at the organization and about how they were going to market in select businesses,” Mr. McCarthy of Stifel said.
General Electric is also trying to navigate the energy future.
By 2024, solar and wind energy technology is expected to attract two-thirds of global investment in power plants and account for as much as 40 percent of total power generation by then, according to the International Energy Agency. As such renewables take hold, natural gas is likely to be pushed from a primary role to a supporting role when the wind does not blow and the sun does not shine.
G.E. has carved out a space in renewable energy, producing wind turbines. But it faces significant price pressure from competitors, particularly in China.
All the while, demand for power is rising more slowly than in the past, owing to the improved efficiencies of appliances and commercial buildings increasingly engineered to save electricity. Power demand growth in China, for instance, has slowed to less than 2 percent a year since 2012 from 8 percent a year from 2000 to 2012.
G.E. said the job cuts in the power business would help it save $1 billion as it moved to reduce costs by $3.5 billion this year and next. The employees losing their jobs work in production and professional roles. About half are based in Europe.
“This decision was painful but necessary for GE Power to respond to the disruption in the power market,” said Mr. Stokes. “We expect market challenges to continue, but this plan will position us for 2019 and beyond.”
Tiffany Hsu on Twitter: @tiffkhsu. Clifford Krauss on Twitter: @ckrausss
Prashant S. Rao contributed reporting
