GE's service push could bring profit margin boost

Wed Nov 28, 2012 7:57am EST
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By Scott Malone

(Reuters) - General Electric Co (GE.N: Quote) plans to unveil on Thursday a new push into service businesses, with a series of programs to help airlines, railroads and hospitals that use its heavy equipment operate more efficiently.

The drive is part of the largest U.S. conglomerate's effort to boost its margins and make more money in a sluggish economy, as sales of services are more profitable equipment than sales of jet engines, locomotives and other equipment.

GE's pitch is that by tweaking how they operate, its customers can cut their own costs. For example, a 1 percent cut in the amount of fuel the global aviation industry uses could generate $30 billion in total savings, GE estimates.

Investors said the company's service business has been more stable in uneven economic times than equipment sales. Last year GE's service business, including maintenance to its products, generated $42 billion in revenue, approached half GE's industrial sales.

"Given the environment, some of the uncertainties, etc., services is an area that plays for the long term because of the...ongoing desire from customers for new levels of productivity," said Steve Bolze, the chief executive officer of GE's power and water business, who is also heading up the company's services push.

The company is developing software systems that analyze data on how its turbines and other equipment are used to find ways to run them more efficiently and at lower cost, Bolze said. It plans to discuss them at an event in San Francisco on Thursday.

GE said it has lined up customers for its new services including: U.S. railroad Norfolk Southern Corp (NSC.N: Quote), low-cost carrier AirAsia Bhd (AIRA.KL: Quote) and drug and medical device maker Abbott Laboratories (ABT.N: Quote)

MARGIN PUSH   Continued...

A GE logo is seen in a store in Santa Monica, California, October 11, 2010. REUTERS/Lucy Nicholson