GE Cutting 12,000 Jobs in Power Division
General Electric (GE) said December 7 it will cut 12,000 jobs in its power unit as the company continues to struggle with changes in the global power market. The company in a statement said the staff reductions will save $1 billion in 2018.
"Traditional power markets including gas and coal have softened," the company said, noting the cuts would affect "professional and production employees."
Russell Stokes, the Atlanta, Georgia-based head of GE Power who took over the division in June, in a statement said "This decision was painful but necessary for GE Power to respond to the disruption in the power market, which is driving significantly lower volumes in products and services. Power will remain a work in progress in 2018. We expect market challenges to continue, but this plan will position us for 2019 and beyond."
General Electric CEO John Flannery, who took over the company from former CEO Jeffery Immelt in August of this year, in November outlined plans to reduce manufacturing in GE's power business due to falling demand for new equipment, particularly in Europe and Asia. Those cuts include slashing $3.5 billion in "structural costs" this year and next, including the $1 billion in the power unit.
Flannery in November said the GE Power unit was still "good" even in a "tough market," but earnings had been hurt after a $10.1 billion investment in Alstom, the French multinational transportation and energy company, had not performed as expected. GE acquired Alstom's power generation and electricity transmission business in 2015.
GE Power in June of this year combined with GE Energy Connections, the company's electrification and automation solutions arm. Since Flannery came on board, the company has sold its water and process technologies division in a $3.4 billion deal with multinational water management firm SUEZ, and sold its electrification business to ABB for $2.6 billion.
The company said the majority of the job cuts announced today will occur outside the U.S. It's expected that at least one-third of the company's workforce in Switzerland will be laid off, and as much as 16% of the company's staff in Germany could be let go, according to Reuters. Boston, Massachusetts-based GE said it has begun meeting with labor union leaders in those countries about the reductions.
The GE cuts-which will impact about one of every five workers in the power division-come just weeks after Siemens, a competitor in the turbine and power plant equipment manufacturing business, announced it is cutting 6,900 jobs, about 2% of its global workforce. The cuts are mainly in its power and gas division.
GE said product sales to traditional coal and gas utilities have fallen due to "overcapacity," lower demand for electricity, and the growth of renewable energy sources such as wind and solar, among other factors.
Stokes said the cuts will make GE Power "simpler and stronger so we can drive more value for our customers and investors." The company is the worst-performing stock in the Dow Jones index in 2017, losing 44% of its value. Flannery has said he wants the company to focus on its core businesses of power, health care, and aviation. Its railroad business is for sale, along with its lighting manufacturing division.
The company in November cut its dividend to shareholders in half, only the second time that's happened since the Great Depression.
Flannery in November in a call with analysts said he had "done an exhaustive review of the business" to compile his plan to cut costs. "I knew a lot about the company from 30 years in it, but we have really gone to the floorboards on the operations " now we have to implement." He added: "We have a challenge in our Power business, and that is something we have to resolve. We did a poor job running that business."
-Darrell Proctor is a POWER associate editor (@DarrellProctor1, @POWERmagazine).
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