How GE Could Become The Apple Of The Industrial Internet

General Electric (GE) doesn’t just make jet engines, wind turbines and locomotives anymore. It now makes data centers — that also happen to power airplanes, harness wind energy and ride the rails.

Connecting these machines is a GE software platform that could underpin an Industrial Internet ecosystem resembling Apple‘s (AAPL) intertwining operating system, computers, phones, app store and music store.

“All of our products are becoming data centers,” GE Digital Chief Executive Bill Ruh told IBD in an interview.

The iconic 124-year-old conglomerate, long synonymous with light bulbs and washing machines, is looking more like a tech company. As it shrinks its finance unit and sells its home appliance business, GE is also reinventing itself as a digital industrial company that could compete head-on with tech stalwarts like Microsoft (MSFT), plus traditional rivals like Siemens (SIEGY) and Honeywell (HON) seeking to capitalize on the Industrial Internet.

GE’s transformation goes deep. The company is moving its corporate headquarters from Fairfield, Conn., to Boston, due in part to its need for “technologically diverse” talent. It also launched an ad campaign earlier this year to rebrand GE as “The digital company. That’s also an industrial company.”

“There are still many people who think GE is locked in a time warp of what slow industrial companies used to be,” said RBC Capital Markets analyst Deane Dray. “GE is breaking all of those molds.”

The Industrial Internet’s Potential

GE estimates the Industrial Internet could be a $225 billion market by 2020, topping the $206 billion seen in the enterprise cloud computing market by then and the $170 billion in the consumer Internet of Things.

While the Internet of Things includes connected refrigerators that can buy more milk online before it runs out, the Industrial Internet envisions machines that tell operators how to improve efficiency or fix a malfunction, potentially saving companies billions of dollars a year.

For example, aircraft engines that GE makes with partner Snecma have sensors that measure vibration, temperature, heat, noise and emissions particles, Dray noted. They could send information while in flight to command centers, where the data are analyzed before the plane lands.

See also  Virgin Galactic Could Hit $1 Billion By 2030 As Analysts Eye Tourism Market

If a fuel nozzle needs replacing, a maintenance team can wait for the plane at the destination airport with a new one. Similar capabilities exist on other equipment, like power generators and trains. Factories could also adjust output to match market demand or eventually operate totally autonomously.

GE’s Ruh said the company puts a data center at the heart of its locomotives, regulating operations like communications, safety and maintenance.

“It’s not a bolt-on,” he said. “It’s a rethink of the products going forward.”

In addition to building connected products, GE’s tech push includes building virtual doppelgangers.

GE says its engineers and scientists are creating “digital twins” of every machine delivered to customers that can continuously learn from their physical counterparts through embedded sensors, allowing GE to analyze the health of each machine without disrupting operations.

And analyzing the flood of data GE products generate also represents an additional revenue opportunity in services. Last year, Japanese construction and mining equipment giant Komatsu (KMTUY) partnered with GE for Big Data analysis services for mining projects.

New Hybrid Model

GE Chief Executive Jeffrey Immelt said at GE’s Minds+Machines developers conference last September that GE and other industrial heavyweights are evolving into hybrid technology/manufacturing companies.

“If you went to bed last night as an industrial company, you’re going to wake up this morning as a software and analytics company,” Immelt said at the event.

A cornerstone of the new GE is its Predix cloud-based operating system, which has an open architecture that allows industrial equipment customers to build on it. Ruh believes GE’s Predix operating system software can become the standard for big manufacturers, as they continue to add intelligence to their equipment.

“We think Predix can be embedded in every industrial machine that’s sold,” he said.

In February, GE launched an open-source digital industrial network, which includes dozens of global companies such as AT&T (T), Intel (INTC), Cisco Systems (CSCO), Verizon Communications (VZ), Japanese telecom giant Softbank (SFTBY), India’s Tata Consultancy Services and China Telecom (CHA), among others.

See also  Worldpay CEO Charles Drucker's Passion For People Pays Off For Payment Processor

The list of partners has grown and includes more tech names. GE Digital recently teamed up with database software giant Oracle (ORCL) to develop and consolidate complementary offerings for the Industrial Internet.

In April, GE released the first commercially available applications running on Predix. The Asset Performance Management suite includes a way to monitor equipment health, as well as a function designed to predict maintenance issues. Another feature to come out later this year is meant to help users manage the service life of their assets, maintenance costs and risk.

Software is still a small part of GE’s business — about $6 billion of its $130 billion in annual sales. But it’s growing at a 20% a year clip, Immelt said, and he’s aiming for $10 billion in software sales by 2020, which would make GE one of the world’s largest software vendors, and perhaps the largest industrial software maker.

So does GE want to be the Microsoft of the Industrial Internet, with its Predix platform becoming as ubiquitous on large equipment as Windows is on PCs? “Absolutely,” Rue said.

Microsoft Weighs In

But Microsoft may actually want to be the Microsoft of the Industrial Internet. In April, CEO Satya Nadella spoke at Germany’s Hannover Messe trade show, telling the gathered manufacturing executives that the software giant wants to take the lead in creating digital platforms for industry, citing work with Microsoft partners including aircraft engine maker Rolls Royce.

“At this point, Rolls Royce is building a software product at the core value of what they do,” he said. “This is what we envision for every industrial company. We want to be able to create these platforms that can, in turn, create more digital technology from every industrial company.”

Meanwhile, other industrial giants also have the capability to develop an open-standard operating system and will resist using something developed by archrival GE, even if it’s an open architecture, noted Edward Jones analyst Jeff Windau.

“All the major industrial companies are doing this to some level,” he said in an interview. “Siemens, Emerson (EMR), Honeywell already have sensors and gauges that collect data on pressure, temperature and such in their equipment. All of them are trying to elevate that.”

See also  Merck Stock: Is It A Buy After Starting A Pivotal Study In Covid Prevention?

Ruh says GE has an edge because it knows and accepts that it’s transforming into a software and analytics company.

“We think we’re ahead of our competitors. We’ve invested for five years in cloud-based Internet-of-Things-focused architecture. Our competitors will be traditional competitors with software capabilities. They’re still trying to catch up.”

GE sees most tech companies as potential partners as it rolls out its industrial OS.

“The reality is we could end up partnering with them,” Ruh said. “We don’t have to be competitors. Right now we’re working our way through that.”

GE-IBM Partnership?

He hinted GE might partner with IBM (IBM), for example, with its Predix platform. Edward Jones’ Windau said that seems like a likely pairing.

“IBM is coming from the top down, and GE is coming from the bottom up. Somewhere in the middle they meet each other,” Windau said.

Not everyone thinks GE is succeeding in transforming into a high-tech industrial company. Asked about GE’s digital thrust, Deutsche Bank senior analyst John Inch said, “Talk is cheap. Just because GE says this doesn’t mean it’s so.”

Inch noted that GE has often focused on change and has undergone various transformations over the years. There are positives, he said.

“I’m not disputing that (GE) can make products better. But GE is not becoming a digital company. That’s a fairly misguided notion,” he said. “It’s an enormous company with power plant generators and locomotives. That footprint is never going to change.”

It will also take two to three years to see if Predix can in fact evolve into an industry standard as GE hopes, Inch added.

Still, as a first mover in the Industrial Internet, GE’s deep knowledge of industrial manufacturing gives it an edge, said RBC’s Dray.

“It will be theirs to lose. Shame on them if anyone from the outside came in.”

View more information:

See more articles in category: Finance

Leave a Reply

Check Also
Back to top button