Last week General Electric announced the sale of the ServiceMax field service management applications software business along with plans to form an independent company for the remaining portions of the GE Digital business.

General Electric announced last week that the industrial conglomerate has reached a deal to sell a majority stake in its ServiceMax field service applications software business to private equity firm Silver Lake Partners. Terms were not disclosed. GE will retain a 10 percent stake in the business. ServiceMax was acquired by GE Digital two years ago for the sum of $915 million. Silver Lake is a rather large and influential private equity presence in the technology market, and from our lens, the deal has other implications down the road.

General Electric further announced that it would form a separate new company that would consist of the remaining Industrial Internet and Internet-of-Things (IoT) enabled technologies of GE Digital. The company will be wholly owned by GE and according to published reports, will inherit the over $1 billion of annual software revenues that made-up the business including the Predix operating system platform.  According to the GE announcement, further details related to the new business are planned for the Q1-2019 time period.

GE Digital Business CEO Bill Ruh has indicated that he will depart the business and a search is underway reportedly internally or externally for a new head of this business. Ruh, a former Cisco senior executive was recruited by former CEO Jeff Immelt to form and lead the business unit at its inception.

Background Perspective

Supply Chain Matters initially praised the efforts of GE to transform the company’s industry businesses to industrial products and services enabled by software platform and application technology. GE Business was the crown jewel of that vision that was fostered by former GE CEO Jeff Immelt. Unlike other major global manufacturing companies, GE elected  to build its own operating system rather than have a reliance or recurring cost dependency on major technology providers. The company was bold in understanding the notions that factories no longer need to be sourced where labor is cheaper, but rather to best service major geographical markets.

Like many advanced technology start-ups, speed to market and deep-pocket investment resources are a crucial dependency for market growth. The strategic advantage for the business unit was GE’s strong presence in transportation, commercial aircraft, alternative energy, and medical equipment sectors, with the ability to leverage both installed equipment presence, internal business horizontal and business unit vertical leadership structures.

The digital business unit attempts to establish the internally developed Predix operating system as a preferred industrial Edge system of choice ran into challenges to recruit an influential set of industry vertical developers will to adopt the operating systems for industry-tailored needs. There was further market resistance from those providing a perceived more open standards approach. In either case, the competitive presence of GE Digital motivated other tech providers such as IBM, Microsoft, Oracle PTC and others to accelerate both Digital Twin and IoT development and partner recruiting efforts. As more of GE’s internal management challenges become ever more visible, it becomes apparent that the Digital business was challenged to garner the resources it deemed essential to be able to pivot in the software technology market.

As a reference, we encourage our readers to get a copy of The Wall Street Journal’s extensive expose report, Burned Out- The story of how General Electric lost power, which was published this weekend,

In July, we had alerted readers to an initial report from The Wall Street Journal indicating plans to pare down GE Digital. Thus, the current announcement should not be a total surprise, and yet another offshoot of the spiraling bad news coming from GE’s ongoing corporate reorganization and earnings growth crisis. In 2017, the company had initiated a review of all operating businesses seeking difficult decisions of where to cut. According to reports, many of the problems resided in the Insurance and Power business units, while the Aviation business was soaring with revenues and order backlog. The company was further feeling increased pressures from a private equity firm.

Market Implications

Currently, GE stock is reached rock bottom. Last week, a highly respected JP Morgan equity analyst who has followed GE for years declared that company may have turned a corner, that while revenue and business growth is still challenged, risks are better understood.

From our lens, last week’s announcements relative to GE Digital are the casualties of a conglomerate in turmoil, shedding what could well have been one of the crown jewels of GE’s future businesses.  The opportunity was to demonstrate how new business models in equipment services and automated manufacturing would manifest themselves in Digital Twin, IoT and predictive analytics-based business models within GE’s owned industrial businesses. Now, with the shedding of such businesses, the vision and opportunity seems to have passed. The announced departure of visionary executive Bill Ruh is yet another sign of a  lost vision as is the indicator that more information will be forthcoming in the coming year.

As a new independent company, the need for added investment capital in a hotly contested technology segment is suspect given GE’s current cash crisis. The word was already out that talent was exiting out the door and now, the move to an independent company will add to a further loss of momentum.

The beneficiaries of these announcements are the specialty and enterprise technology providers that were competing with GE Digital.  Some could argue that the move sets the stage for yet another strategic move, but GE indicates there are no plans to pursue an initial public offering.

Prospective new customers will surely need assurances as to the longer-term presence of the new independent company. Existing GE Digital customers will likely be looking toward frank discussion at contract renewal time.

Last week’s development is once again a rather sad commentary to a bold vision. Once again, major manufacturers and advanced technology providers may well gain the benefits of such a vision.

 

Bob Ferrari

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