Wednesday, November 26, 2008

GE explains why they are CONFIDENT and believe that their strategy is still right!


Confidence... is vital in a crisis situation and it continues to be apparent the Immelt and his team are very confident that they have the right strategy and it will yield positive results for all of the stakeholders.

This is summary of what they have communicated on the GE website (http://www.ge.com/) , about the critical issues and how they are addressing them. I would like discuss these points briefly:


GE is a strong and solvent company-- and adapting to change..
My opinion: I am happy that Immelt and his team have recognized that being adaptable is key to the success of the company. This is one of the key points I made in my book.
The Company is safe
• "We have taken actions to keep the Company safe and to maintain a strong balance sheet. These include reducing leverage and long-term debt needs to solidify our Triple-A credit rating and raising an additional $15 billion of cash through an equity offering. This is money in the bank that gives us additional protection and flexibility."
My opinion... unfortunately the actions taken to keep the Triple A rating caused the stock to dive to as low as $12 a share... this was a surprise and it is critical that future surprises be avoided.
Aggressive cost management
My Opinion...GE has always been focused on cost reductions. However, it is very difficult to rely on the Business Units to do this without top down prodding and enforcement. The combination of top down and bottom up cost reduction has worked the best. The key is assure that the most vital businesses don't sacrifice the future to make the short term numbers...
No “bailout” money

My Opinion-- unfortunately "perception is often reality" and the company's moves to get Buffet and Government money made it appear that it was required and not just desired... it is vital that the company review the words and timing of its actions so that it is not just related to sick companies.
Diversified business model
My Opinion... most of the most recent news stories about GE appear to confirm that energy and infrastructure are doing well. It is vital that this continues and if there are changes that the company inform investors early and tell the entire truth... NO SURPRISES...
Global growth
• "More than half of our projected ~$187 billion in revenues will come from outside the U.S. this year. While other economies are experiencing challenges, some areas are growing and our broad diversification will serve us well."
My Opinion: I am still concerned about having Research and Development Labs in China and India, since it puts GE innovative and technological assets and skills in countries where it is not uncommon to have them pirated. China still has a poor track record on patent and copyright protection.

• "Providing service to our customers is a key piece of our business. It is even more important in challenging times as customers want to insure that their equipment is running efficiently and effectively. Services are high margin; they will contribute about $35 billion in revenue in 2008 and make up a significant portion of our backlog. GE Capital is profitable and manages risk prudently"
My Opinion... Services have a been a key to GE's success since the Jones era...however, the best services are based on strong technological based products and systems.
• "GE Capital is expected to make about $9 billion in 2008, more than almost any other financial services company in the world"
My Opinion is that GE Capital plays a vital part of the overall GE strategy, since it enables the company to finance high tech systems and projects...but it has been allowed to take on a life of its own and became all things to all people and highly leveraged and opportunistic... Immelt has promised to reduce the dependence on GECC now he must do it.

"We are a profitable, well run business with a portfolio of high quality assets and hold the highest long and short-term credit ratings from S&P and Moody’s. Notwithstanding this, we continue to diversify our funding sources (including growing deposits), reduce our reliance on commercial paper and strengthen liquidity and capital adequacy to improve our access to funding."
Stock price
My Opinion: GE's stock has been impacted by the financial crisis, but if the company had not missed its first quarter and surprised everyone, including themselves, it would still be in the high 20's or low 30's. It was SURPRISE that caused half the problem.

Overall, I am still a GE fan and investor... I still think the company needs to be more selective and focused and not be focused on GOING BIG and GOING GLOBAL..further they need to slow down, focus on doing what they say and avoiding further surprises... if they do and follow the key factors of past success, which I call LATIN...Leadership, adaptability, talent, influencing and networks, all of the stakeholders will prosper.


Bill Rothschild, author of the only objective, comprehensive and insightful analysis of GE's 127 years of successes and failures and the lessons we can learn from both...THE SECRET TO GE's SUCCESS.

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