GE Makes Shifts in Strategy and Financial Targets

General Electric wants its business of industrial software to reduce costs and increase profits in 2018 under new CEO John Flannery. It is also considering the expansion of its partnerships and a possible sale of certain equity within the unit, said a source familiar with the current situation.

Former CEO Jeffrey Immelt spent over $4 billion during six years transforming the company, which is 125 years old, into one that is digital industrial.

However, GE has run into technical problems as well as delays with its platform for software, called Predix that connects equipment such as elevators and turbines to computers which are able to predict failures and help to lower operating costs.

Earlier this year, GE called an unusual time out for two months to grapple with the problems in Predix, which have not previously been reported.

With those fixes now in place, GE will emphasize sales to its current customers in its aviation, energy and gas and oil businesses, as well as scale back its effort to make sales to new customers across other sectors, said their senior executives at GE.

To help its investors better get a handle about Predix, GE has also redefined its digital revenue that excludes $3 billion in hardware that is related to its power plants that are gas fueled, providing a picture that is much clearer of its “pure” software business as well as avoiding any double-counting, said Jeff Bornstein the company’s CFO.

The company is now expecting digital revenue of $12 billion during 2020, in comparison to $15 billion for the prior definition. Total revenue at GE reached close to $124 billion in 2016.

GE’s changes represent an important correction in course for its GE Digital arm, which thus far has not be delivering revenue that investors have wanted and is responsible in part for a decline of 25% in the share price of GE in 2017 to nearly a low of two years.

GE is estimating that the industrial internet market by 2020 will have a value of $225 billion, and new CEO Flannery, who officially started August 1, appears to be committed to the vision of Immelt for GE to be a major player.

However, the new CEO, who is 55, and known for his finance skills as well as making difficult decisions, will likely press GE Digital to lower costs as well as lift profits in 2018.

Flannery might also restructure the operation of GE Digital by bringing in additional partners and possibly selling a small stake of the unit.

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