General Electric's Immelt boosts R&D budget

Jeffrey Immelt says General Electric Co’s growth depends on bringing the right technology products to market, from gearless wind turbines to cancer-treatment tests and engines that turn cow manure into energy.

“I believe that more investment is going to be required to drive growth,” the 54-year-old chief executive officer said in an interview. “It’s the way you build big service revenues and good margin rates.”

GE will spend $20 billion on technology development in the two years through 2012, and the company is increasing research expenditures 18 per cent this year alone.

Even if the products debut as planned, Immelt needs them to become hits quickly. They will make up a larger share of earnings because the percentage contributed by other businesses is decreasing as GE sells a majority stake in its NBC Universal unit to Comcast Corp and shrinks GE Capital to less than a third of profit from about half in 2007.

 

GE made a step toward the latter goal with an agreement to sell its BAC-Credomatic unit to Grupo Aval Acciones y Valores, Colombia’s largest bank holding group, for $1.9 billion.

GE divisions excluding media and finance provided 57 per cent of the parent company’s $156.8 billion in sales last year, up from 51 per cent in 2007. Immelt and other executives are scheduled to host a webcast tomorrow to discuss the company’s performance in the second quarter as investors look for indications R&D investment is paying off.

Whenever a company introduces or overhauls a major product such as a planemaker’s jet engines or a country’s electrical grid, there are risks: the wrong decision may mean being cut out of a market by competitors for decades. GE will add 30 per cent more products this year than last with a similar number in 2011, Immelt said.

“It’s a lot more complex for a GE because you have state-overseen type products — you get the government involved because it’s the grid for baseload power, or rail initiatives, or transport,” said Nick Heymann, an analyst at Sterne Agee & Leach Inc.