Unable to Unload Limping Divisions, GE Invests in Propping Them Up
By PAUL GLADER
Last year, General Electric Co. said it wanted to stop making light bulbs and appliances. Now, it is putting money back in those businesses.
GE last month said it would add 400 jobs to build hot-water heaters at its appliance division in Louisville, Ky. Meanwhile, the company is upgrading its line of high-end refrigerators and opening a training and sales showroom in Brussels.
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GE is investing in organic LEDs, which can be used in safety outerwear.
General Electric
GE is investing in organic LEDs, which can be used in safety outerwear.
GE is investing in organic LEDs, which can be used in safety outerwear.
GE is investing in organic LEDs, which can be used in safety outerwear.
In lighting, GE is introducing products using light-emitting diodes and pouring money into research on organic LEDs, a promising energy-efficient technology.
GE is among many companies the recession has saddled with businesses they would rather exit. Besides lighting and appliances, GE has tried unsuccessfully to sell operations in railcar leasing and private-label credit cards.
Qwest Communications International Inc. recently called off an auction for its long-distance network, indicating it was unable to find a buyer. Cablevision Systems Corp. in May shelved plans to explore selling some assets, including New York's Madison Square Garden.
Warren Bennis, a business professor at the University of Southern California, says such predicaments become more common during recessions. Complicating matters, he says, companies often must invest in the unwanted units, if only to keep them marketable for the future.
Jim Campbell, chief executive of GE's lighting-and-appliance group, says GE Chief Executive Jeffrey Immelt has told him, to "Run the business like we're going to be in it for a long time."
"We've continued to invest," Mr. Campbell says. "Despite the tough economy, we've held our expenses at constant and are continuing to launch new products every quarter." Mr. Immelt declined to comment. In 2007, the lighting-and-appliance group posted record revenue of $12.66 billion and operating profit of $1.03 billion, earning it accolades at GE as a top performing unit. But amid the housing bust, the recession and stepped-up competition, revenue dropped 7.3% last year as profit tumbled 65%.
Although the lighting-and-appliance group carried the GE brand into millions of households, its factories have aged and its labor and production costs have increased, especially compared with those of foreign competitors. The decline in new-home construction dealt a further blow.
Mr. Immelt told Mr. Campbell in April last year that GE planned to sell its appliance division. When GE and potential buyers couldn't agree on a sale, GE said last July it would spin off the lighting and appliance divisions together as a separate public company. That plan was hobbled by the recession and credit crunch.
Mr. Campbell says he must invest in new technology, even if GE doesn't own the operation for long. But GE is cutting costs companywide, forcing Mr. Campbell to juggle spending and saving. He has closed some factories and recalled some U.S. managers working abroad.
"As I look in the rearview mirror, we probably should have started more aggressive cost cutting much sooner," he says. Now he is scaling back on some product lines while ramping up investment in others. GE declines to give specific investment and cost-cutting figures.
Deane Dray, a senior vice president at FBR Capital Markets in New York, says that after the aborted sale and spinoff, rivals may find it easier to poach some of the unit's 40,000 employees.
"It's damaging for everybody," he says. "You have to run it like a core business even though you have declared it to be noncore."
Ellis Yan, chief executive of TCP Inc., a light-bulb maker whose Cleveland offices are near the headquarters of GE's lighting division, says he has hired several former GE engineers and scientists in the past year.
Mr. Campbell says key people have stayed.
The lighting division is winding down its manufacture of traditional incandescent bulbs, closing some factories and converting lines to newer products. It expects revenue in LED applications to rise 30% this year to $150 million. Products include traffic signals, street lamps, signs for chains like Hilton Hotels Corp. and display lighting for Wal-Mart Stores Inc.
In the appliance division, GE's union of 2,100 hourly workers in Louisville voted in May to freeze wages as part of GE's agreement to build energy-efficient hot-water heaters in Louisville. GE also is getting $17 million in government incentives. It hopes the products will open markets and inject new life into GE's appliance business.
Mr. Campbell believes there is still an outside chance GE might decide to hang on to the units, especially in light of the subsidies and tax breaks the Obama administration is doling out for energy efficiency.
"I really can't speculate on it," Mr. Campbell says. "Ultimately, it's up to Jeff [Immelt] and the board." |
