General Electric (NYSE:GE) is investing large sums to make its industrial machines more productive and efficient for customers through the use of sensors, software and Internet-based analytics. The industrial conglomerate is outfitting its machines from jet engines and turbines to CT/PET scanners with sensors and software that monitor and collect data on the health of different parts of that machine. A cloud-based Internet platform then analyzes this data through advanced analytics involving historical data points to provide machine operators and maintenance engineers with real-time information, which is used to schedule predictive maintenance checks that improve machine efficiency as well as prevent downtime to improve overall productivity.
This convergence of industrial machines, data and the Internet to lift industrial productivity and thus create value is termed as the industrial Internet. According to wikibon, in 2012, the total technology spend on industrial Internet was around $20 billion while the value created by industrial Internet was around $23 billion, which translates to a return on investment of around 15%. By 2020, the total technology spend on industrial Internet is estimated to reach $514 billion, and the value created by the industrial Internet is estimated to rise to nearly $1.3 trillion which translates to a return on investment of around 150%.  This creates a very compelling case for industrial machine manufacturers like GE to invest in industrial Internet systems and technologies in order to take advantage of this value creation.
- Here Are The Key Takeaways From GE’s Q4 Earnings
- General Electric’s Q3 Earnings Bolstered By Aviation Growth
- GE’s Aviation Business Likely Drove Q3 Earnings Despite Continued Headwinds At The Oil And Gas Segment
- GE Increases Full Year EPS Guidance In Light Of Strong Performance
- GE-Alstom Deal: GE Willing To Make Concessions As EU Commission Raises Antitrust Concerns
- Update: GE Capital Divestiture Continues At Good Pace
So far, GE has committed $3 billion to develop its industrial Internet ecosystem across industries that include aviation, power generation, healthcare among others.
We currently have a stock price estimate of $24.56 for GE, marginally ahead of its current market price.
Cloud-based Analytics Platform To Aid Adoption Of Industrial Internet
GE promised $1 billion in November last year to develop systems and technologies required to implement the industrial Internet, and then in June this year, committed another $2 billion in the healthcare space.  A couple of months back the company also launched a cloud-based analytics platform which helps its customers analyze the large amounts of data generated from sensors fitted in their GE machines. This additional capability will promote adoption of GE’s industrial Internet, and will also allow many of its customers to do away with maintaining local IT servers and resources to derive additional bottom line gains. This cloud-based analytics platform uses Hadoop software to analyze the large amounts of customer machine data.
Industrial Internet has been enabled in recent years by advances in sensor and networking technologies. Smaller, cheaper and faster sensors that consume less power and have minimal impact on the equipment being sensed has played a critical role in enabling the industrial Internet. Advances in networking technology that allows faster collection of data from sensors to be merged with historical data for analysis has also played an important role.
GE Is Bringing Industrial Internet To Aviation, Power Generation and Healthcare
GE is currently working to add the industrial Internet value to many of its machines. For example, in its jet engines, the company is working to add multiple intelligent sensors that will enable exhaustive monitoring of the engine. Analysis of the data generated from these sensors in real-time on an Internet-based platform will help engineers schedule predictive maintenance or repair sessions which will help the jet engine work near peak performance. Now, if all the engines in an airline’s fleet work near peak performance, large gains in fuel efficiency will be realized as well as the selective maintenance enabled by this technology will accrue gains in staff allocation and maintenance costs.
Additionally, not only in jet engines, GE is bringing this technology to other parts of an aircraft as well. In June, one of its joint venture companies – Taleris – signed its first predictive maintenance contract with Etihad Airways. Under the contract, Taleris will seek to prevent unplanned aircraft downtime resulting from among other things failure of aircraft air-conditioning.  Sensors fitted throughout the aircraft will provide ongoing data to be combined with historical data to predict when the aircraft’s air-conditioning might fail. Engineers will accordingly schedule maintenance sessions in anticipation of a failure and thus prevent aircraft downtime.
GE is also developing similar applications for the power generation industry where its gas turbines will utilize sensors and analytics to work near peak performance and thus consume less fuel as well as cause lower emissions.
In the healthcare space, GE is aiming to increase the productivity of its hospital machines like CT/PET scanners and other diagnostic equipment on the same concept. Some of its other innovative efforts include development of a sensor box, which will be used to place patient bracelet tags on discharge. This box would then instantaneously indicate to the maintenance department to prepare the room, which will help improve utilization of hospital beds.
Potential Deterrent To Adoption Of Industrial Internet
One potential challenge in the initial phases to the adoption of GE’s industrial Internet can come from conservative engineers within organizations who will actually be responsible for implementation of this system. To overcome this challenge, GE will have to clearly highlight its industrial Internet’s advantages to customers which will help bring their engineers on board.Notes:
- Defining and sizing the industrial internet, June 27 2013, www.wikibon.com [↩]
- GE Healthcare to invest $2 billion in software development over five years, June 11 2013, www,ge.com [↩]
- GE and Accenture joint venture Taleris provides Intelligent Operations for Etihad Airways, June 18 2013, finance.yahoo.com [↩]