Schenectady-based GE Power to cut about $1 billion in costs

CEO tells investors Global Research an important part of future
General Electric was born in Schenectady 125 years ago.
General Electric was born in Schenectady 125 years ago.

General Electric CEO John Flannery on Monday issued his long-awaited turnaround plan, and singled out the two operations headquartered in the Schenectady area as important pieces of GE’s future.

Flannery said Schenectady-based GE Power will become one of GE’s three core businesses as it streamlines and sheds non-core businesses such as Lighting. But Power is performing poorly, and will have to cut a billion dollars in expenses in 2018.

RELATED: GE cuts dividend as new CEO moves to streamline

Flannery also said Global Research is a strong positive asset, and called its Niskayuna headquarters “incredible” in a conference call with investors. Through consolidation, Niskayuna and Bangalore, India, will be Global Research’s only two facilities.

What positive or negative impact this might have on GE’s Capital Region workforce and economy wasn’t discussed by Flannery, nor by locally-based GE officials.

One immediate impact on the many people who own stock in General Electric is already known, however: GE is cutting its dividend for only the second time in 75 years, from 24 cents to 12 cents per quarter, for a savings to the company of $4.2 billion a year. 


General Electric was born in Schenectady 125 years ago. Several of the conglomerate’s component businesses have a presence now on the campus at the foot of Erie Boulevard. But it is most closely identified with the steam turbines and generators manufactured there by GE Power, which has its headquarters there.

Monday’s investor update indicated that GE will focus on Power, Aviation and Healthcare as the core of its strategy to move forward. It indicated that Power has some significant problems, but that they are fixable within one or two years.

Power will cut about $1 billion in costs in 2018. Steps already taken to do this include limiting travel and off-site meetings; scrutinizing contracted services and eliminating contractors; delaying salary increases; and reducing discretionary spending.

What else might be done either hasn’t been decided or isn’t being disclosed at this point. However, there were references Monday without elaboration to consolidating operations — reducing the number of facilities GE occupies. 

The investor update boiled the strategy down to four points:

  • “Right-size the business for realities”
  • “Drive a more holistic services focus”
  • “Execute better”
  • “Improve our culture”

The company said it expects GE Power to show a 10-percent drop in revenue (minus acquisitions and mergers) for 2018 and a 25-percent drop in operating profit.


Global Research is the research and development arm of the company, led by GE Chief Technology Officer Vic Abate, whose office is on the Niskayuna campus. Global Research is not one of the company’s businesses, it is part of GE Corporate. 

As such, its size is difficult to quantify. There are about 2,000 Global Research employees in Niskayuna, but Global Research regularly draws on the services and work of tens of thousands of engineers and researchers at GE component businesses around the world.

Until recently, Global Research had several research centers. GE has ended Global Research’s presence in Brazil, Germany and China, leaving only the facilities in Bangalore, India, and Niskayuna.

Flannery was asked Monday if research is one of the sectors being reduced or eliminated. He said it wasn’t, but it will be consolidated to more efficiently continue its work.

“That’s one of the things that comes back quite positively,” he told investors. “We have always had an incredible center in upstate New York, we have a massive center in India, and then we have a lot of smaller ones. We looked at that and said, ‘We don’t need nine research centers to still have incredible corporate research.’ So we’re not de-emphasizing that, but the way we do it — differently.”

General Electric Vice Chairman David Joyce seconded this point on the investor call, saying the new leadership team looked at the company’s positives and negatives, and Global Research was a positive.

“This is where world-class scientists take science, turn it into applied technology, which then we look at to turn into differentiated technology,” he said.

What happens to the size and focus of the workforce at Global Research is unclear as the company reduces the number of products it manufactures and fields it specializes in. But Global Research scientists don’t work for any one GE business. If a particular business should be sold off, the technology developed for it goes into the “GE Store,” the stockroom of ideas, knowledge and prototypes the company has built up over the years.


Left clutching their wallets through all this are GE’s investors, large and small.

Monday’s announcement led GE share prices — already down 38 percent over the past year — to drop another 7.2 percent in heavy trading Monday.

With 8.67 billion shares outstanding, that equals a $12.79 billion loss for investors in one day.

The dividend cut is likely to be noticed, too. As the share price dropped, the value of the 96-cent annual dividend rose to more than double the rate of inflation. At 96 cents it would equal about 5 percent annually if shares held steady at $19.02, Monday’s closing price. 

But it was cut to 48 cents, to free up money for the company to boost its value and, presumably, its stock price.

Charles Brown, vice president of Hugh Johnson Advisors in Albany, said even with the 50 percent cut, GE’s dividend still exceeds the average paid by S&P 500 companies. So his investment firm is keeping a very small position in GE stock — about 1.5 percent of an investment strategy that focuses on dividends.

“I don’t think it was a big surprise,” Brown said after Monday’s presentation.

“I think a lot of this has already been priced into the stock leading into the meeting.”

Complicating matters, he said, is the longstanding criticism that GE’s earnings announcements are “difficult to decipher.”

As for the long-term prospects of GE stock, he didn’t offer a prediction. The answer comes down to whether investors trust in Flannery and his vision.

“There is no quick, easy short-term fix,” Brown said. “There’s clearly going to be a big restructuring.”

Categories: Business, News, Schenectady County


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