New York - The company founded by Thomas Edison doesn’t have much interest in selling old-fashioned lightbulbs - or much of anything for that matter - to everyday folks anymore.
After agreeing to jettison its century-old home-appliances division this month, General Electric may now shed its legacy business that sells lighting to retail customers. While GE continues to make bulbs for consumers, it’s concentrating on technologically advanced industrial and commercial lighting products - like a streetlamp that calls authorities when a gun is fired.
GE’s retreat from consumer-focused businesses has been rapid. As little as five years ago, people could buy GE microwaves, lightbulbs and refrigerators, watch GE-owned NBC on their televisions, and open credit cards or savings accounts through GE’s finance arm. Of those, lighting is the only division not already divested or in the process of being sold as part of GE’s dramatic restructuring to focus on heavy-duty industrial equipment.
“The lighting industry has become somewhat commoditised,” said Beth Comstock, vice chair and head of the business innovations unit that includes lighting. “We like where we are, but the focus on our future really is on the smart, connected, commercial space for lighting.”
Appliance sale
GE is bullish on bulbs using light-emitting diodes, or LED, for home use. While the iconic lighting division is not officially on the market, the company would be receptive to offers for some consumer-focused operations, according to a person familiar with the company’s thinking who asked not to be identified. Rival Royal Philips NV is in the process of unloading lighting operations while Siemens AG spun off its division in 2013.
GE is planning to sell its appliances business to China’s Qingdao Haier Company for $5.4 billion. Last year, GE sold more than $100 billion of finance divisions as it reshaped its portfolio around manufacturing industrial products such as jet engines, oilfield equipment and gas turbines.
GE’s lighting business, based in East Cleveland, Ohio, traces its roots to 1879, when Edison invented the first commercially practical incandescent lamp. His business interests became the precursors to GE, which was formed in 1892.
The business has come a long way since, of course. The push for more energy-efficient bulbs has led to the phase-out of incandescent technology in recent years. GE shuttered a Virginia plant in 2010 that was its last in the US making tungsten-filament incandescent bulbs.
Legacy lighting
“The legacy lighting business - we continue to evaluate our options,” Jeff Bornstein, GE’s chief financial officer, said in an interview. “It’s a business that shrinks every day, every quarter as the world continues to transition away from old technology to new technology.”
GE and Philips, as well as newer companies such as Cree, have pivoted toward long-lasting LEDs, leading to rapid improvements in quality and lower retail prices - and reduced profitability for manufacturers. The durability of LEDs is great for buyers, but has weighed on companies that are seeing revenue from replacement purchases evaporate.
GE’s combined appliances and lighting unit generated an operating margin of only 5.1 percent in 2014, the second-lowest of its industrial divisions and well below the 16.2 percent overall, according to data compiled by Bloomberg.
Blending software
Its focus has shifted to Current, a newly created division that blends portions of the commercial lighting business with GE’s growing energy-focused operations, and smart LED bulbs for the home. The goal is to incorporate software into lighting hardware to broaden the capabilities; it’s similar to a companywide effort to monitor and use data from the industrial equipment it sells.
Working with customers such as Wal-Mart Stores, Hilton Worldwide Holdings and the city of San Diego, GE is exploring a variety of uses for lights, including sensors to determine where customers spend the most time in stores, smarter parking-space signals and the ability to allow authorities to monitor city lights through an iPad.
GE also is in talks with potential customers to roll out streetlamps that can detect the number, location and direction of gun shots, and alert emergency dispatchers.
Technology shift
“There’s a lot of things we’re learning about what you can do with a light source,” said Maryrose Sylvester, Current’s chief executive officer. “There is a technology shift going on in the lighting industry that is probably more dramatic than anyone expected.”
GE launched Current with $1 billion in sales, a figure that could grow to $5 billion in five years, she said, as the business expands the potential markets for advanced bulbs.
“Light was to see, and now light is to be an adjunct of the police force and the public safety,” said Nicholas Heymann, an analyst with William Blair & Co. who upgraded GE’s stock potential in October to outperform. “That definition wouldn’t even have been possible two years ago, and it’s still hard for a lot of people to understand.”
BLOOMBERG