GE predicts tide coming in for water business

Reuters reported on 11 Aug 2009 that General Electric Co predicted water purification could grow from a drop in the corporate bucket to a major growth driver within years, just as its wind unit did.

With an estimated $2.5 billion in revenue, the water business remains a sliver of the $156 billion in sales expected to generate this year. The unit’s small size has lead some investors to wonder if GE might prefer to sell it to focus on businesses where it can better enjoy the benefits of scale but GE said water has the potential to become a major profit contributor. “What GE tries to do is to align the company with some of the mega-trends, the mega-challenges of the world. Energy is one, healthcare is the other, and the third one is water,” said Heiner Markhoff, president and chief executive of GE Water & Process Technologies.

GE does not disclose the profits or revenue of its water business, but the unit has been hit by the global recession. In a conference call discussing the company’s 36% second-quarter profit decline, GE executives noted that service revenue related to the water business, which does not include equipment sales, fell 18% in the quarter. GE’s rivals include Siemens AG, Dow Chemical Co, Danaher Corp and Nalco Holding Co.

Some analysts think GE may soon exit the water business. “We think it is increasingly likely that GE may seek to divest its $2.5 billion water and process technologies platform over the next one to two years,” said Bank of America/Merrill Lynch analyst John Inch. In a June note to clients he noted that the water business has lagged GE’s typical profit margin and growth targets.

Below are five facts about GE’s water business:
* GE’s water business employs about 7,900 people worldwide and has manufacturing facilities in 50 countries.
* The unit generates the majority of its revenue, 63%, outside the US, with some of the strongest growth from the Middle East, Africa and Australia.
* GE technologies focus on the quality of water being released from industrial processes and municipal treatment plants as well as allowing industrial users to improve the quality of the water they are bringing into processes to prevent it from harming high-tech equipment.
* GE has set a goal of cutting its own water usage 20% by 2010, a move that it said will cut its annual operating costs by $15 million to $20 million.
* GE and the National University of Singapore in June 2009 opened a joint research center to focus on water, which employs 30 scientists and engineers from GE. (Note: This is GE’s first collaboration with a university in the Asia-Pacific. You can read further here)