GE GE Aerospace

By Dana Cimilluca, Dana Mattioli and Thomas Gryta 

General Electric Co. is seeking a buyer for key parts of its digital unit as the industrial conglomerate unwinds a signature initiative of former Chief Executive Jeff Immelt.

The Boston-based company has hired an investment bank to run an auction for the operations, which produced $500 million or more in revenue last year and lost money, according to people familiar with the matter. It isn't clear what exactly is for sale and how much a deal could generate.

Though proceeds of a sale aren't expected to mean much for a company with a market value of more than $100 billion, the move to unload the operations is symbolic of a dramatic reversal of fortune at GE, which has stumbled badly after a series of missteps.

GE Digital, a once highly touted software unit based in San Ramon, Calif., was key to the strategic vision of Mr. Immelt, who left last summer. As part of an effort to reorient itself away from financial and media assets and bolster a sluggish stock price, the company built a software platform called Predix that aimed to help customers like utilities and airlines gather and analyze data to better manage their equipment.

GE Digital was established as a stand-alone unit in 2015 to distinguish it from the company's industrial divisions. Mr. Immelt put a former Cisco Systems Inc. executive in charge and said his goal was to make GE a top-10 software company by 2020.

In the fall of 2016, GE paid $915 million to acquire ServiceMax, a Pleasanton, Calif., company that makes apps for inventory management and workforce scheduling. Executives predicted at the time that GE Digital would hit $15 billion in software sales by 2020 with half of that coming from providing Predix applications for the electricity industry.

But the unit, which GE poured billions into, competes in an increasingly crowded marketplace of companies offering digital tools to control major industrial operations. Other competitors in the field include cloud-software providers like Microsoft Corp., business-software makers like International Business Machines Corp. and startups such as C3 IoT and Uptake Technologies Inc.

Since taking over for Mr. Immelt, GE's current CEO, John Flannery, has scaled backed the mission for GE Digital. The company has cut jobs in the division and said it planned to focus on software for its existing customers and core businesses, rather than catering to other industries. Mr. Flannery said earlier this year that he expected revenue from Predix products would double this year to about $1 billion and that he wanted GE Digital to break even by 2020.

The company has said its digital business generated $4 billion in revenue last year, up 12% from 2016. Not all of that activity would go to a buyer as GE is expected to continue providing software and services to its aviation and power customers.

While the process is at an early stage, possible buyers include software companies and other industrial players seeking to become more digital-focused, one of the people said.

GE's digital push included ramping up research spending and hiring thousands of programmers to develop software for the massive machinery it sells. In 2016, the company spent more than $4 billion developing tools like analytics and machine-learning software. The effort was also at the heart of the company's advertising, which touted GE as a driver of a new "digital industrial" age.

Unlike most manufacturers, GE built its own operating system from scratch rather than partner with a tech firm. It designed software to crunch data from its jet engines and power turbines to avoid outages and schedule maintenance, then set out to sell similar tools to its customers and other manufacturers.

Trying to build out its own cloud infrastructure, essentially replicating the expertise of companies like Amazon.com Inc. or Microsoft, was challenging, said Chris Voce of Forrester Research.

Running such a large-scale operation "both cheaply and effectively is no small task," Mr. Voce said. "When trying to build a software platform on the side, that's a tremendous undertaking."

GE is now embarked on a companywide restructuring, sparked by a precipitous decline in its shares last year that hasn't let up in 2018. The company said in June it would spin off its health-care division and sell its ownership stake in oil-services company Baker Hughes.

The two businesses, together with a railroad unit that is being sold, accounted for a third of GE's $122 billion in revenue last year. GE has said its yearlong portfolio review is complete and it is essentially done with plans to sell $20 billion in assets.

Other industrial companies like Honeywell International Inc. and Siemens AG, along with smaller firms, are using software to help customers get more life out of heavy machinery -- while avoiding unplanned outages -- by using complex data and models to predict how the equipment will perform.

"It is imperative to have some kind of differentiated digital industrial strategy and capability," said UBS analyst Steve Winoker. It both helps sell the equipment and brings in lucrative recurring revenue that comes from maintenance and service.

But at GE, "the hype engine went faster than their ability to deliver," he said. "The first priority should be using the software to help drive your own sales."

--Steven Norton contributed to this article.

Write to Dana Cimilluca at dana.cimilluca@wsj.com, Dana Mattioli at dana.mattioli@wsj.com and Thomas Gryta at thomas.gryta@wsj.com

(END) Dow Jones Newswires

July 30, 2018 18:28 ET (22:28 GMT)

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