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General Electric Co. can’t live with a fixation on market share, but it can’t live without it, either. The embattled conglomerate, having long run its business with the goal of being the No. 1 or No. 2 player in each of its industries, saw its lead in the gas turbine market shrink in 2018.
GE captured 33 percent of orders in 2018, down significantly from its 10-year average of 43 percent, according to an analysis of McCoy Power Reports data this week by Barclays Plc analyst Julian Mitchell. It’s also below the 40 percent market share that Rob McKeel, chief marketing officer of GE’s power unit, told the Financial Times in
August he expected for 2018.
The market as a whole continued its downward spiral, with ordered capacity coming in at the lowest level since 2002, Mitchell notes.
To the extent you can put a positive spin on this, it’s that the price discipline promised by former GE CEO John Flannery and his successor Larry Culp is finally taking root in a power business that prioritized growth over profits for far too long.
GE booked a $350 million charge in the fourth quarter for project overruns and execution issues and took a $400 million writedown on contract assets – agreements for which it booked earnings in advance of cash flow – as it recalibrated overly optimistic assumptions on utilisation in some regions and the price and cost of servicing turbines.
On last month’s earnings call, Culp said he was encouraged by the progress GE has made in combing through the post-2016 underwriting class of its project book. While that suggests more losses could be in store for the power unit as GE tackles older parts of the backlog, Culp vowed to focus on profitable market share going forward.
Interestingly, Mitsubishi Heavy leapfrogged Siemens AG to clinch the No. 2 spot for the first time, with a 30 percent market share. Among the newest-generation turbines, known as post F-class, Mitsubishi booked 49 percent of orders, versus 34 percent for GE, according to Reuters.
Mitsubishi’s 2018 market share gains were fueled in large part by one key contract win in Thailand, so it’s risky to read too much into the data. Even so, the heightened competition over a paucity of new orders underscores the challenges GE faces. It has to keep revenue coming in the door, and that will likely entail some sacrifice of its new-found price discipline for the foreseeable future.
Despite some positive signs on utilisation rates, GE CFO Jamie Miller acknowledged pricing pressure on some of its service contracts, which she said the company can “often†offset with cost productivity.
—Bloomberg