GE Industrial Systems: Power play
GE Industrial Systems grinds through the downturn with determination and positive prospects
By Caitlin Kelly -- Movers & Shakers, 8/15/2002
It’s a tough business in a tough time. But if anyone can make things happen, it’s Lloyd Trotter, CEO of GE Industrial Systems.
 “What we’ve got to do now is
give shareholder value: control costs, increase
productivity, and work closely with our customers.” Lloyd Trotter, CEO, GE Industrial
Systems |
“It’s hard to imagine a less glamorous business and one with lower profit margins, but Trotter has a unique ability to name and meet his numbers,” says Nick Heymann, senior vice president with Prudential Securities. “It’s almost like trench warfare.”
Headquartered in Plainville, Connecticut, with annual revenues of $6 billion, the firm has more than 40,000 employees, 100 major manufacturing facilities, and more than 300 sales and services offices. Trotter, president and CEO since 1993, is a man who, even though he takes no prisoners, talks quickly and laughs easily.
There’s no question that the current economy has hurt GEIS. And the outlook for the next year is “flat at best,” Trotter says. “I don’t see a big rebound. It’s a grind-it-out kind of mentality.”
“I’d like to see the recession over,” Trotter continues. “Our long-cycle businesses [such as aircraft engines] are doing well, but our short-cycle ones [such as appliances] are having a harder time.” While he won’t name customers, Trotter says they include “every major automotive company, every paper mill, every home builder, and large utility.”
Times are changing somewhat for parent company GE, which enjoyed two decades of 24 percent annual growth under former CEO Jack Welch. Since Jeffrey Immelt took over, the financial community has felt less confident in GE’s ability to deliver such nonstop numbers.
GE Industrial Systems faces three major competitors: Groupe Schneider, with revenues of $13 billion, ABB, with $30 billion, and Siemens, with between $35 and $45 billion, Trotter says. “They’re all global players. They are all very viable companies and what we continually do to keep pace is to apply a fair amount of acquisitions and new technologies. Our product lines are much broader than theirs, whether in utility, commercial, or industrial. We can put together a much broader package than any of them.”
Profits for GEIS dipped from $140 million in Q1 2001 to $130 million in Q1 2002, thanks to the North American recession. “I think we’re operating well in this environment because we went for higher levels of productivity, making our operating costs better,” Trotter says. “But we can’t make up the margins we’ve lost.” GEIS moved some manufacturing to lower-cost regions and redeployed workers to front-line sales positions.
Digital tools, such as the EliteNet intranet system, which allows GEIS customers to order products and services online, are helping Trotter meet his annual goal of cutting $100 million in costs. The tool now has 1800 users worldwide. “We’re beginning to see some real benefits from it,” Trotter says.
Trotter focuses on putting out new products, which in turn allows GEIS to be “a great service company.” The company sells power quality systems and management systems, for example, products for which uptime and reliability are keys. But the marketplace is consolidating, Trotter admits. “Then scale becomes very important,” he says. “You’re looking for a holistic approach to a channel rather than selling discrete products.”
Sixty percent of GEIS customers are American, and of the remaining 40 percent, 70 percent are European. “Where we’ll probably grow the fastest is in our international markets,” he says. With European markets still consolidating, Trotter looks to Asia, and China in particular—with projected growth rates of 6 to 7 percent a year—for future sales growth.
Heymann looks to the growing American market for power distribution upgrades to spur growth. Ten new regional utilities are repositioning themselves, and each is likely to need the products and services GEIS offers. “They’ve got to upgrade now to wield power and move it around the country,” Heymann says. The market is worth about $10 billion a year over the next two to three years, he says. “That’s a big piece of business.”
In August 2001, GEIS acquired the Lentronics line of advanced multiplexer products from Nortel Networks. The products are used primarily for telecommunications and intelligent transportation applications in the utility, industrial, and oil and gas sectors. The line became an integral addition to the automation solutions product of GE Power Management, a GEIS business unit that provides protection, monitoring, and control technology.
GEIS is doing well because it’s globalized, says analyst Marc McCluskey, research director with AMR Research. “Compared to its competitors, it’s doing well.” While Siemens has a strong name and Groupe Schneider is well known in Europe, GEIS enjoys the international cachet of the GE brand, he says. The major difference between these three, he adds, is GEIS’ relentless focus on its clients. “Where ABB would design the product and Siemens would make sure it was the most efficient, GEIS will design a product to serve the customer,” McCluskey says.
Acquisitions remain a key strategic tool, Trotter says. “The thing we’re really concentrating on is looking for companies with high technology and opportunities to grow,” he says. In February 2002, GEIS bought Interlogix, a global electronic security company with more than 35 locations worldwide. By acquiring Spirent, a British international network technology company, in November 2001, GEIS obtained a leader in sensor technology. Trotter plans to grow Spirent’s sales from $140 million to $1 billion within two to three years.
“What we’ve got to do now is give shareholder value: control costs, increase productivity, and work closely with our customers,” Trotter says. “I don’t think people buy products anymore. They want to know how to lower their bottom line and they buy value. Your products have to communicate this to them.”
