General Electric SWOT Analysis
Although it is most prominently known for its products in the consumer & industrial segment with products such as home appliances, refrigerators, freezers, gas ranges, and microwave ovens, General Electric is one of the worlds’ most respected companies in at least a dozen other market segments. Would you like a lesson on SWOT analysis?
Low Debt Ratings
In January 2009, Moody’s Investment Services placed the long-term ratings of GE and GE Capital on review for possible downgrade. The review of company’s rating for downgrade was primarily due to uncertainty regarding GE Capital’s asset quality and earnings performance in future periods. Further, Standard & Poor’s downgraded the company’s ratings outlook from stable to negative. Lower credit ratings represent higher borrowing costs and reduced access to capital markets for GE. Under debt instrument guarantees and covenants, GE would have to post additional collateral if the ratings were cut below AA-/Aa3 or A-1 and P-1, or four levels, the company said in its annual filings with the U.S. Securities and Exchange Commission
Substantial Debt Burden
GE has a high level of indebtedness, which could adversely affect its financial condition and future operations. In 2008, the company’s total debt (short and long term) amounted to $523,762. General Electric’s high debt produces an interest burden which could increase in the period of rising interest rates. In 2008, the interest coverage ratio of the company declined to reach 3.8, as compared to 4.2 in 2007, and 4.5 in 2006. The company’s substantial debt limits its ability to obtain additional financing to fund future working capital, capital expenditures.
Increased Demand for Commercial Airplanes
It is projected that passenger traffic would grow at 4.8% annually till 2027; requiring approximately 28,600 new commercial airplanes to meet the increasing traffic. The commercial airplane market is expected to grow to $2.8 trillion by 2027. By that year, the global commercial airplane fleet is expected to double as compared to the existing fleet size. The Asian-Pacific region is projected to be the largest segment at over 35% of a $2.8 trillion market. General Electric is positioned to take advantage of the projected increased demand. The company’s commercial aircraft financing business owns 1,494 aircraft and its customers include over 230 airlines located in 70 countries. GE’s product inventory includes jet engines, turboprop, turbo shaft engines, and related replacement parts.
Continued Global Project Opportunities
General Electric works in more than 100 countries around the world. China leads a long list of international contracting opportunities being developed by GE. In 2008, the company contracted to supply China with equipment for pipeline compression in the country’s natural gas transmissions pipeline. In that same year, General Electric executed an agreement to provide power generation equipment for the Iraqi Ministry of Electricity.
In addition, it was announced in 2009, that GE had agreed to GE Energy signed an agreement to build a new power technology center in Russia. The company will also deliver 25 new locomotives to Nigeria in 2010. More than half of GEs revenues come from outside the United States, other contracting opportunities will take place in Mexico, South Africa, India, Italy, and Japan.
Key Acquisition Strategy
General Electric continues to implement a strategic plan to acquire high margin assets in financial services sectors. Its goal is to develop new customer relationships and deliver more profitable growth for its shareholders. In 2008, GE Capital acquired assets of CitiCapital, a commercial leasing and commercial equipment finance business. Another acquisition reflecting the goal of serving a broader base of customers is the purchase of Kelman of Lisburn, an Ireland company engaged in providing advanced monitoring and diagnostics technologies. Other recent acquisitions include MicroCal, Agility Healthcare Solutions, Vital Signs, and Interbanca.
Environmental and other government regulations
Many of General Electric’s operations come under the jurisdiction of various federal, state local and even foreign environmental regulations. These governmental entities seek to monitor the adherence to guidelines regarding discharge, treatment, storage, disposal of materials. In 2008, GE incurred mandated remediation expenses equaling $0.3 billion.
It is anticipated that the company may face ongoing remediation costs averaging $0.35 billion over the next two years. In addition to these costs, government compliance may force the GE to modify its business models and objectives or affect its returns on investment by making existing practices more restricted.
Projected Labor Cost Increases
As of July 2009 the U.S. federal minimum wage rate is $7.25 an hour. This increase along with increased overtime, and a higher proportion of full-time employees are resulting in an increase in labor costs, which could have an impact the General Electric’s operational costs.
In 2009, GE was ranked among the top 10 in Fortune magazine’s listing of the 50 Most Admired Companies in the World, ranked ninth overall, and first in the electronics industry. In addition, 2008 found GE ranked fourth among Business Week’s “World’s Most Innovative Companies”. GE was also ranked 11th in Fast Company’s annual list of the world’s 50 most innovative companies in 2008. A strong recognition across varied categories has ensured its status as one of the strongest players in the industry. Such recognition and respect will further enhance its brand image and gives it a competitive advantage.
Diversified Product Portfolio
The company is one most diversified technology, media, and financial services corporations in the world. General Electrics portfolio boasts the following segments: Capital Finance, Commercial lending and leasing products, GE Money Financial Products, Real Estate Capital and Investment Solutions, Energy Financial Services, GE Commercial Aviation Services, Technology Infrastructure, Enterprise Solutions, Healthcare Business, Energy Infrastructure, Oil & Gas business, NBC Universal Broadcasting, and of course the Consumer & Industrial Segment. Such diversity contributes to a well balanced array of revenue streams. In 2008, the company’s largest business division, capital finance accounted for 37.1% of the total revenues, while its technology infrastructure segment contributed 25.6%; energy infrastructure segment 21.4%; NBC universal segment 9.4%; and consumer & industrial segment 6.5%. Such balance has helped General Electric ride out an economic slowdown which has occurred over the last three years.
Strong Revenue Growth
General Electric’s Compound Annual Growth Rate increased by 10% from 2006 through 2008 with revenues rising from $151,568 million to $181,515 million. The revenues from its largest business segment, capital finance, increased by 1.1% when compared to FY2007. In addition, revenues from technology infrastructure increased by 8.2%, energy infrastructure 25.6%; while NBC universal grew by 10.1%. This growth is also reflected in key geographic markets, for example, revenue from Europe increased by 10.3% in 2008, revenues from Pacific Basin increased by 8.3%; Americas 17.5%; Middle East and Africa 26.3%; and other global by 17.5%. General Electric expects 2010 to generate solid earnings growth, even if the economic recovery is uneven. The company is optimistic about achieving this growth while generating substantial “free cash” that could further enhance investor returns.