GE Adapts Plane, Train Technology to Expand in $12 Billion Marine Market

NEW YORK (TheStreet) -- General Electric (GE) wants to do for big tanker ships and offshore rigs what it's demonstrated it can do for wind farms and airplanes.

Its recently created GE Marine business is making an aggressive push into the "Industrial Internet," a cloud-based service that uses GE's Predix software platform to maximize machine performance with input from equipment sensors, potentially generating billions in cost savings across a broad swath of industries.

The marine industry is ripe to benefit from the technology, Tim Schweikert, vice president of GE's marine unit, said in a telephone interview. Although GE has operated in the industry for decades, it launched the Marine division in January to more effectively coordinate its efforts.

The unit garners sales from four of the company's major segments: energy management, oil and gas, aviation, and transportation. Orders in the segment are expected to jump to $750 million this year, up 57% from 2014, according to a recent investor presentation. Of a roughly $12 billion market, growing at 6% annually, GE has about $3.4 billion of deals in its pipeline.

"We are investing organically, in other words, continuously improving our marine profile across the four different businesses," Schweikert said. Deals range from electric-power and propulsion systems for liquid-natural-gas carriers -- including Japan-based Kawasaki Heavy Industries -- to sales of diesel engines, complex navigation systems, and most recently an agreement inked in July with Cegelec in Brittany, France, to provide a static power system for the French navy.

"We've been in the marine space for quite some time and we've seen some nice growth, particularly through the boom cycle between 2010 to 2014," Schweikert said. With GE Marine, "we want to unify our assets because it makes it easier to sell to customers, and easier for customers to do business with us," he said. "And it makes it easier for us to think like a ship owner."

The marine expansion is part of CEO Jeff Immelt's strategy to draw 90% of total operating profits from industrial businesses by 2018, while scaling down the lucrative GE Capital finance unit that weighed on the parent company's earnings during and after the financial crisis. 

"What they're doing is building out their coverage across a larger and larger swath of the industrial markets across the world," said Nick Heymann, an equity analyst with William Blair. "These guys are pulling up this new business as they're exiting their old business, GE Capital."

Last year, GE Capital generated 28% of the company's $147.8 billion in revenue as well as 28% of $18.6 billion in operating income.

The company's data analytics division, which includes Predix, constituted 2.7% of GE operating earnings in 2014, and will likely generate 5% to 6% in 2018 and from 15% to 20% in 2023, according to Heymann.

"There are very few companies that have a large enough space across utilities, hospitals, airlines, railroads and oil and gas," he said. "So by going and having this unique existing set of businesses that has a very large installed base and coming up with the genesis of installing software and processing that data, it's going to create huge value."

GE's ability to fend off competition in the budding business will depend on maintaining the largest industrial base around the world, Heymann said. Despite the softening market for energy, GE's proven ability to cut costs could easily make oil and gas the next lucrative play.

Offshore oil is a business exposed to cyclical depressions, creating a demand for industrial analytics that will help companies determine which rigs are going to remain operational and viable, according to Heymann. Perhaps more importantly, GE is developing the ability to move data processing to the ocean floor instead of the surface, which is more complex but more effective in monitoring output and efficiency.

"It's very much technology driven, and we're quite bullish even though we're in a down cycle in the offshore drilling," Schweikert said, estimating that roughly 25% of offshore rigs are idle or not on contract because of falling crude oil prices. "We're doing well because of the backlog, which has been growing in the double digits over the last several years."

"We just launched a Tier-4 locomotive in U.S.," Schweikert said, referring to an Environmental Protection Agency emission standard with which the engine complies. "That same low-emission technology has been 'marinized.'"

Another major target in cross-pollination is liquid natural gas carriers, which require very large, heavy diesel engines that have correspondingly high emission and pollution levels.

After being the first to equip a full-size LNG carrier with electric propulsion in 2002, GE is now offering the LM2500 turbine engine, developed for its aviation unit, as a less cumbersome power source for the vessels. The model is GE's most popular gas turbine, adopted by 33 navies worldwide.

"It also goes into transport vessels," Schweikert said. "You can use reduced weight and space to take on more cargo or have a smaller hull or optimize design of the hull to be more efficient."

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