General Electric (NYSE:GE) is one of America’s oldest and most recognizable companies. GE was created in 1892, and counts the venerable Thomas Edison as one of its founders. The Fortune 500 company remains one of the largest in the U.S., generating nearly $122 billion in revenue last year.
Businesses range from its roots in lighting and power generation to aviation and healthcare. However, GE is also proof that even a massive organization with a storied past needs to reinvent itself to stay on top. This century in particular has been a tough one for General Electric, which has seen its profitability decline along with its prominence.
As we enter a new decade, is there hope that General Electric will successfully reinvent itself? Will the turnaround the company has been working on take hold? Or is GE doomed to the fate of a continued slide toward eventual irrelevance?
A Century of Prominence and Two Decades of Decline
Few companies were as visible in the 1900s as General Electric. The company grew into a multinational conglomerate. GE was involved in all the latest technologies — from television to aviation to computing — along with core businesses like appliances and light bulbs.
By the turn of the century, GE was in trouble. The company snapped up businesses just as they became popular, then lost money when they tanked. This pattern repeated with acquisitions in the oil and subprime mortgage industries. It invested heavily in fossil fuel generation just as renewables began to take off.
Massive amounts of money and debt were pumped into GE Capital just before the financial crisis of 2009. After decades of growth, General Electric has slumped in value over the past 20 years.
Not everything GE did since 2000 has been a misfire. One of the big bets General Electric has made is on its GE Digital division. The Internet of Things is exploding, and while connected devices for the home get the majority of the headlines, bringing the Internet of Things to industry has become a lucrative business for GE. The company considered spinning its GE Digital division off, but confirmed at the end of October that it will remain part of General Electric.
What the Future Holds for GE
History has shown that companies can successfully reinvent themselves and come charging back stronger than ever. One of the best examples of this is Apple (NASDAQ:AAPL). In 1997, the personal computer company was on the verge of bankruptcy. Today, Apple is one of the biggest and most dominant tech companies in the world — and not because it still makes PCs. It’s Apple’s bets on emerging tech like the iPod, iPad and especially the iPhone that vaulted it into such a dominant position.
General Electric has not yet hit the low point that Apple reached — although the current scramble to cut its $93 billion in debt reflects the growing urgency of its position.
However, after two decades of struggle, General Electric finds itself in difficult spot. While it has been divesting itself of non-core businesses and investing in long-term bets like GE Digital, the company has continued to slump in value. That leaves it vulnerable.
In 2017, Steve Blank (an adjunct professor at Stanford University and senior fellow at Columbia University) wrote in Harvard Business Review that GE was under threat from activist investors looking to quickly make money. Breaking up the company to sell off divisions is a classic strategy in these situations. As Blank stated:
… often they calculate that selling the parts is worth more than keeping the company together as a whole. Or they may even put the entire company up for sale.
That is one of the potential fates that awaits General Electric. Another is a continuation of the past two decades, to the point where GE essentially fades to irrelevance. If you’re an optimist? It’s possible that the company successfully turns things around, with a focus on its core businesses and an eye to the future with GE Digital.
Whatever the outcome and for better or worse, it seems unlikely that the General Electric of 2030 will have much resemblance to the GE of the 1900s.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
