General Electric (GE) Builds the Data Foundations for its Smart Grid
General Electric (GE: Charts, News), the diversified technology and financial services giant, recently made a surprising announcement that it was expanding heavily into the IT and data software field by hiring hundreds of workers over the next two years, an investment valued at over $1 billion.
GE is currently establishing a new software center in San Ramon, near San Francisco, which is expected to house over 400 software engineers and marketing experts by 2013. This is an interesting move for the company, which has traditionally been associated with commercial and industrial products - such as aircraft engines, light bulbs and medical imaging equipment. GE has pointed out that it currently generates $2.5 billion of its $150 billion annual revenues from software sales, and that this effort is intended to streamline its growing need for powerful data centers storing increasing amounts of information. The company already employs 5,000 software professionals across its medical, energy and transportation business divisions. Daily Chart
GE's move is curiously similar to Google's (GOOG
) expansion into wind energy and power plants. Both strategies are focused on the long-term vision of a "smart grid" in which appliances and industrial equipment will be linked to the Internet as well as a power grid, and can be powered on and controlled remotely. Whereas Google is approaching from the Internet side of the business, GE is approaching from the other - by creating the "smart" appliances of the future and providing the data centers that can sort out the information. GE and Google are not alone in their vision - recently, the McKinsey Global Institute described smart grids and "big data" as the next frontier which could trigger a "leap in productivity" in both the public and private sectors, suggesting that the increased efficiency of data transfers to smart grid equipped machines could save $300 billion in the U.S. healthcare sector, reduce healthcare expenditures by 8% and cut costs as well as boost margins in other industries. Bill Ruh, a vice president at GE was selected to head the company's data center initiative. "No one knows what the business models are going to be. The killer applications haven't worked themselves out yet," stated Ruh, "GE is seeing this happen and has begun to realize that it can be at the forefront of this." However, the IT industry GE is dabbling in is already a crowded one. The field of IT and cloud based technology is a war zone, with large players such as IBM (IBM
), SAP (SAP
) and Hewlett-Packard (HPQ
) trading heavy blows constantly. Massive acquisitions are the norm in software companies. In August, Hewlett-Packard made an $11 billion acquisition of U.K. based Autonomy simply to expand its reach over more data centers. However, Ruh is confident that GE's unique stable or products - ranging from aviation to energy to smart appliances - gives the company a powerful, unique advantage over these competitors, since it can provide data center storage uses far beyond regular cloud computing and backup needs. If anyone can make a dent in the IT industry, it would be GE, the oldest component of the Dow with a market cap of $170 billion. GE already has customers lining up. Last year, train operator Norfolk Southern Corp. NSC hired GE, rather than a traditional IT company, to develop the software that oversees its train traffic and manages its fleet. Norfolk was thoroughly impressed by GE's RailEdge Movement Planner software, which improves railroad capacity and reliability, while reducing transportation costs. It appears that RailEdge might only be the tip of the iceberg for the possibilities that GE can unleash by integrating its industrial products with cutting edge software technology. Perhaps fully automated air traffic control systems or self-regulating smart homes aren't that far down the line. If so, then shares of GE, which currently trade with a forward P/E of 10 and a PEG ratio of 0.9, might finally become a growth stock once more. Other News About GE GE Aviation Orders Top $13B at Dubai Air Show
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Published on Dec 2, 2011
By Leo Sun