General Electric wants its industrial software business to cut costs and increase profits next year under its new chief executive officer John Flannery. It is also considering expanding partnerships and the possible sale of any equity in the unit.
The industrial giant may sell a stake in the industrial software unit that served as a linchpin of ex-CEO Jeff Immelt’s “digital industrial” vision but proved a drag on GE stock.
Former CEO Jeffrey Immelt spent six years and more than $4 billion transforming 125-year-old GE into a “digital industrial” company. However, the company has had technical problems and delays with its software platform, known as Predix, which connects equipment like turbines and elevators to computers that can predict failures and reduce operating costs.
Revenue and returns fell short of expectations, and the Predix industrial software platform was dogged by problems this spring.
GE then called an unusual, two-month “time-out” to tackle the Predix problems, which have not been previously reported.
Now with fixes in place, GE will now focus its sale on existing customers in its energy, aviation, and oil-and-gas business, and scale back efforts to sell to new customers in other sectors.
“Our resources will go to our fastest-selling markets,” GE Digital Chief Executive Officer Bill Ruh said in an interview.
To help investors better understand Predix, GE has also redefined digital revenue to eliminate $3 billion in hardware related to its gas-fueled power plants, giving a clearer picture of the “pure” software business and avoiding double-counting, Chief Financial Officer Jeff Bornstein said.
The company now expects $12 billion in digital revenue by 2020, compared with $15 billion under the old definition. GE’s total revenue hit nearly $124 billion last year.
The changes show a significant course correction for GE Digital, which so far has not delivered the revenue investors wanted and is somewhat responsible for a 25% percent decline in GE’s share price this to a nearly two-year low.
GE estimates the industrial internet market will be worth $225 billion a year by 2020, and Flannery, who took over on Aug. 1 as the company’s new CEO, appears committed to Immelt’s vision of being a major player, according to two people familiar with his thinking.
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