General Electric’s downfall has been spectacular, and while it likely won’t go as far as actually dying, its death throes have seen it sell off heaps of assets. The latest maneuver sees it cast off GE Digital, its software company that houses the Predix platform, as a standalone firm, as well as throw in the towel on ServiceMax, by selling it off to private equity.
In terms of lessons learned, it seems clear that throwing money at the problem doesn’t work. GE saw that it was quickly moving into a world where it would be more of a data and analytics company, providing services rather than just industrial equipment. There is definitely an appetite among customers to effectively pay a subscription to a provider like GE, and in exchange receive a bundled service that included maintenance, with the vendor essentially providing a turbine and guaranteed uptime.
To that end, GE saw that it needed software expertise, but it was very ambitious in its scope, looking to become one of the leading software providers globally via GE Digital. While now quite the same level of wizardry as RF, software is definitely not simple, and GE seems to have learned that lesson in a most painful fashion.
GE claims that GE Digital is going to hit the ground running, with $1.2bn in annual revenue from its existing customers. However, the division’s CEO, Bill Ruh, is not making the move, and has decided to depart GE entirely. This means that GE is now conducting an internal and external search for a CEO for GE Digital, at a time where some stewardship would be rather helpful. One can read it both ways; as cleaning house, or an omen of downward spiral amid talent departures.
There had been rumors that GE was planning to sell off GE Digital, reported in the Wall Street Journal earlier this year. The outlet said GE had hired an investment bank to this end. No one would comment on the matter, but if GE has tried to sell GE Digital and failed, that’s another worrying sign.
The division seems quite a way off the initial targets by GE, which envisioned $15bn in revenue by 2020. Perhaps the WSJ’s sources had a wire crossed, with regard to the investment bank’s involvement with ServiceMax rather than GE Digital, but it’s odd that ServiceMax’s modeling and optimization portfolio for logistics is not being included in the complementary portfolio of GE Digital. We have heard that Predix is somewhat difficult to use, compared to its rivals, which will not have done it any favors.
GE Digital may also have run afoul of the GE leadership change. It was something of legacy of former CEO Jeff Immelt’s vision for complete digital transformation, which is now a strategy that GE has eased off and distanced itself from. Immelt’s successor John Flannery was quickly shown the door too, and now Lawrence Culp is at the helm, it appears that the Flannery era sell offs are continuing. GE Digital may well have fallen out of favor with those currently trying to right the ship.
In terms of timelines, Culp may have decided to keep GE Digital in-house, rather than completely sell it off, as appeared to be the preference under Flannery. The argument for spinning it out as a wholly-owned subsidiary rather than just continuing on as normal is not particularly clear, however. The new brand, directors, and equity structure may provide a refreshing change of climate, but that remains to be seen. Being able to issue shares in GE Digital, rather than GE, might make job positions more appealing to software developers, who are often attracted to such share options.
The sale of a majority stake in ServiceMax does not yet have a publicly known price tag or percentage. Silver Lake is acquiring the bulk, but no price is being given. GE acquired the company for $915mn, back in 2016, at the same time it paid $495mn for Meridium. Those two deals showed that GE was happy to invest $1.5bn into the GE Digital plan, but if the new business is entering 2019 with just $1.2bn in revenue, it seems that the return-on-investment has been too slow for the flailing GE parent company to stomach.
Predix notched up a decent win back in July, after the Dubai Electricity and Water Authority (DEWA) said it would be using GE Digital and Predix to improve efficiency in its Generation division – installed in power plants and piping data to cloud-based analytics. Predix had also pivoted from a GE-hosted cloud service to one that can now be spun up on private clouds or public cloud providers like AWS.
At the time of the DEWA announcement, GE stock was at $13.99. It has since been hammered, hitting a low of $6.71 on December 12th. Following the announcement of the spin-off, the stock climbed by about a dollar, before being caught up in the market slump on Christmas Eve. Currently, the share price has hit $8.05, but Riot outlined GE’s misfortunes in two November articles – covering the historic share price slump and a looming SEC investigation into is $22bn goodwill charge, should you wish to dive deeper. Just remember, that even a dead cat will bounce.