Tuesday, June 21, 2011

Mr. Immult Can Talk the Talk, but Definitely Hasn’t Been Walking the Walk!

I decided to delete the previous blog I posted after reading Jeremy’s post. Originally, I wrote about GE’s current CEO’s belief in “heavyweight products that take patience and piles of cash to develop, weigh tons, and last for years.” He goes on to say that businesses with “big moats” – those that are hardest to get in and hardest to do – have the best returns over time.

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I definitely like that way of thinking and think that companies like LinkedIn, a professional social network that recently went public with a valuation of around $9 billion, are overvalued and vulnerable. $9 billion is a pretty big number considering their net income in 2010 was $15.4 million. To me having $9 billion worth of a good idea floating around in cyber space isn’t exactly the same as having $9 billion worth of factories and machines and people.

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There are many other companies out there like LinkedIn that just seem to lack substance. Recall the bursting of the dot-com bubble not so long ago. This link lists some of the most famous dot-com companies that failed big (and they’re all long forgotten): http://www.cnet.com/1990-11136_1-6278387-1.html. Round two might be right around the corner.

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I decided to switch directions because the NY Times article left me with an impression of GE that changed more than a little after reading some of the things Jeremy pointed out. Interestingly, almost all articles on-line paint GE in a light similar to that of the NY Times article. I’m guessing there are a lot of GE stockholders out there who are also in the professional writing business.

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One thing that struck me when I went back and reread the article is that Mr. Immelt has been the CEO since 2001, well before the GE Capital fiasco. And more than a few years have passed since that fiasco. What’s he done since? One thing I’ll give him credit for is talking a good game, but it seems that’s really all he’s good for.

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Like the NY Times article, the vast majority of articles on the Internet were heavy on cute quotes but a little light on facts. So, I used some of my recently acquired Financial Analysis skills and looked at GE’s most recent 10-K filing with the SEC. Cute quotes don’t help much there.

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I would’ve guessed, based on everything Mr. Immelt said in the article, that investment in and revenue from “heavyweight products” would have increased substantially. That’s just not the case. Property, Plant, and Equipment declined by $2 billion in 2010 and 17,000 employees lost their jobs (40,000 since 2007). Also, there was only a slight increase in spending on machinery and equipment, coupled with a slight decrease in spending on buildings, structures, and related equipment.

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Last year, revenue from Energy Infrastructures dropped by about $3 billion and revenue from Technology Infrastructures dropped by about $600 million, while revenue from NBC Universal increased by $2.7 billion. In 2010, GE Capital saw the largest segment profit increase (of over $1.5 billion, although it’s still recovering from a multi-billion dollar drop a few years ago).

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In 2010 revenues declined by about $5 billion and total assets dropped by $8 billion, so maybe GE isn’t the best company to model a business strategy off of. Of course, GE is still a company in recovery, but where are the investments in the “heavyweight products” that Mr. Immult spoke of in the article? The last thing I expected to see were billion-dollar increases in revenue from NBC Universal and huge increases in profits from GE Capital in 2010 right below huge drops in revenues from energy and technology infrastructures.

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Mr. Immult seems to have read “Can You Say What Your Strategy Is,” because he’s able to articulate it very well. It seems, however, that he should take a look at “Secrets to Successful Strategy Execution” and actually put all those ideas into practice. He’s been there since 2001 and based on everything that’s happened under his watch along with GE’s current performance, I can’t believe he still has a job.

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