GE Lighting disappears in radical restructure

That is the take-away message from the $148.6 billion industrial giant’s most recent reorganisation of its lighting business in which it moved commercial and industrial LEDs into a broad new $1 billion “startup” energy services business called Current.

Less well-known in the shift: GE also quietly rubbed out its venerable GE Lighting escutcheon, and rebranded it as the Consumer and Conventional Lighting segment, including incandescent and fluorescent lighting as well as residential LEDs. Some observers expect GE to eventually sell that group, which meanwhile will continue to emphasise the sales of bulbs rather than fully embracing the newfangled service ethos of Current.

The idea of Current is that LEDs with all of their digital proclivities – including sensor and network connections – will be intelligent cogs in a wheel collecting and disseminating data for GE’s commercial and industrial customers. A Walmart might use LED-based ‘visible light communication’ to watch shoppers around physical stores and entice them with tailored promotions that the retailer sends to individuals’ phones. A city like San Diego might use streetlight sensors to monitor and manage traffic, crime, air quality and many other things.

It’s all part of GE CEO Jeff Immelt’s overarching ‘industrial internet’ strategy. Immelt has staked the future of the company on digitally connecting the tools and objects of the industrial world to create nothing less than what he calls ‘the next industrial era.’

‘GE is leading the way towards an age of brilliant machines that can harness reams of data to deliver transformative progress for people and businesses around the world,’ Immelt said when delivering the company’s annual 2014 results earlier this year, calling the industrial internet, ‘the connective tissue of twenty-first century infrastructure,’ and ‘the most important initiative I have led at GE.’

ANYTHING THAT CAN BE DIGITISED WILL BE

GE’s goal is to embed and connect sensors into everything in its habitat, whether it’s jet engines, gas turbines, locomotives or light bulbs. Those networked sensors would allow customers to gather data that helps them run the assets more efficiently, and users could leverage for other business purposes, such as analyzing shoppers’ movements.

From a lighting perspective, Current – officially called ‘Current, powered by GE’ – will not only help a commercial user engage with customers or manage inventory. It would also feed LED-linked information into GE’s cloud-based analytical software called Predix that scrutinizes mountains of data from a users’ solar panels, energy storage devices, electric vehicle charging stations and other sources, and helps make the most efficient use of electricity and decide things like when to sell excess power to the grid in the case of users generating their own.

‘It’s all about bringing to our customers what they tell us they’re looking for from a company like GE, and that’s to help them in a more holistic way solve a burning problem, which is how they become more energy efficient, more sustainable, and think in more of a solutions oriented approach (rather than ) a one-off solution or point solution,’ Current CEO and former GE Lighting CEO Maryrose Sylvester told Lux in an interview.

Current potentially puts teeth into Immelt’s industrial internet bite. And it could restore the financial outlook for the lighting business, where revenues from Sylvester’s so-called ‘point solutions’ appear to be in decline, or static at best. A year ago, around the time of GE’s last lighting reshuffle, the company told Lux that lighting had accounted for about $3 billion in revenue in 2013. Published reports indicate that the number fell to around $2.5 billion in 2014.

Sylvester would not verify the decrease. Publicly held GE does not break out lighting revenues in its financial line reporting. It includes them as part of ‘appliances & lighting’, a segment that includes washers and dryers and that GE is unloading to Swedish appliance firm Electrolux in a deal that has been delayed by antitrust scrutiny. The company’s Current press release last week described lighting as a $3 billion business.

PRICE DECLINES AND GUNSHOTS

While volume sales of LED lamps have grown, prices have dropped considerably. Three years ago they were around $25. Consumers balked, even with LEDs’ compelling attributes of providing 80-to-90 percent energy reduction, and lasting for a reputed 20 years or more. Today, sub-$5 prices are common for a single bulb; US retailer Home Depot is selling a 3-pack of GE 60-watt equivalent lamps for $10.97, or about $3.65 per unit.

‘The paybacks are getting to a point where it becomes a really good choice,’ notes Sylvester.

A good choice for consumers, but not one that supports a long term profitable business for GE, especially considering that there isn’t much of a replacement market for a product that lasts 20 years or more. Making things even tougher for an incumbent company like GE is that it continues to carry the costs of a traditonal lighitng business, including factories. Even as GE reported on Friday (16 Oct) that LED revenue was up 65 percent for the third quarter and now represents 39 percent of the lighting business, the cost and price outlook almost certainly taints the profits.

Thus, GE is moving to a Current-branded service-based business model, in which LEDs are a sort of loss leading but vital tool in a data services scheme. Those services are potentially as varied as anything that can be digitised in the potentially ubiquitous Internet of Things.

For example, GE is already piloting smart, Predix-connected streetlighting in San Diego and in Jacksonville, Fla., where sensors mounted on luminaires are helping with things like traffic and emergency response. Public outdoor smart city lighting schemes are taking hold in cities around the world, not just from GE, supporting a wide variety of operation such as parking, traffic, air quality, noise and even monitoring the bird population.

In an acoustic addition to its sensor stable, GE at the end of September began working with SST Inc. to use that company’s ShotSpotter technology to detect gunshots, which could link into police force and public safety operations.

SPY LIGHTS FOR RETAILERS

GE’s smart lighting reach extends to indoor environments such as Wal-mart and Walgreens – the largest drugstore chain in the US – which are already using GE LED lighting for energy saving purposes. Sylvester noted that GE is talking to both of them about possibly deploying visible light communication (VLC), a technology that GE is already piloting with two retailers each in the U.S. and Europe (it won’t reveal who).

In Europe, lighting rival Philips has signed up a Carrefour retail store in northern France to trial VLC. In the U.S., retail giant Target is also using the technology at a small number of stores, although Target declines to discuss the implementation or to identify the vendor.

Not to be forgotten in the brave new play of lighting-based digital services is that the LEDs will still, of course, provide illumination, even if lighting is ironically looking like an afterthought.

And while the LEDs will still offer significant energy advantages, those will become more de rigueur.

‘It’s our view that the energy efficiency benefit will be less material in a few years,’ notes Jed Dorsheimer, an analyst with investment bank Canaccord Genuity. ‘That’s not to say it’s less important. But the drivers toward solid state lighting will be about the other services and the things you can do when you digitise all these sockets.

‘For a large retailer, knowing what the floor traffic is on a real time basis and being able to harness that is probably more valuable in terms of inventory management than the energy savings are to their utility bill.’

Which is why GE, while retaining conventional lighting, will as Sylvester notes put ‘all the heavy investment…into the LED space.’

WITHER CONVENTIONAL LIGHTING?

That, in turn, rekindles speculation that GE will want to unload its traditional lighting business, now called Consumer and Conventional Lighting (CCL) after the breakup of GE Lighting into Current and CCL.

‘What happens to the GE Lighting legacy is a good question – I think it may mean that GE will be looking at selling that part of the business to somebody else, because in the end, it doesn’t form part of the core of GE,’ notes David Vos, an analyst with Barclays.

GE’s Sylvester says GE remains committed to the business, even after the breakup of GE Lighting. ‘We work to make sure we have the right products available for our customers when they need them,’ she says. Sylvester will oversee CCL as CEO; John Strainic will run it day-to-day as chief operations officer. Strainic had been general manager of GE’s North America consumer lighting.

It’s reminiscent of a year ago, when GE’s Beth Comstock, now vice chair, told Lux then that GE Lighting was not for sale. Soon after, GE disclosed a lighting reorganisation in which it aligned GE Lighting with an innovation group headed by Comstock.

The creation of Current marks the company’s latest attempt to stir up its LED business with an innovative business model. GE calls Current a ‘startup’ that groups together lighting with other existing business streams including revenue related to solar panels, electric vehicles and energy storage. It plans to grow those revenues from around $1 billion today to $5 billion by 2020.

It is piloting Current services with customers including Walgreens, Simon Property Group, Hilton Worldwide, JP Morgan Chase, Hospital Corporation of America (HCA), Intel and Trane, a brand of Ingersoll Rand, all of whom hope to drive energy efficiency, reduce costs and leverage data from connected devices like light bulbs.

‘It will be interesting to see how much commitment they’re truly going to make, or whether this is more of a marketing and PR type initiative,’ notes Canaccord’s Dorsheimer.

Wherever Current lies in the reality-to-PR spectrum, it’s coming from the very top of GE.

‘The combination of LEDs and analytics puts a computer where a light bulb used to be,’ CEO Immelt said earlier this year. ‘In cities around the world, GE is working to transform street lighting into the analytical brain of urban life. Today, lighting is becoming a high-tech infrastructure business. It is a gateway for most energy management solutions.’

Whether it is a profitable gateway remains to be seen.

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