G.E. Plans Software Headquarters for California as Industrials Move Online

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General Electric

General Electric Co. (NYSE:GE), the conglomerate with a hand in everything from light bulbs to broadcast television, will over the next three years sink $1 billion into a new software hub in the San Francisco Bay Area. [1] The move will allow it to better compete with rivals like Germany’s Siemens AG (NYSE:SI), Europe’s largest engineering company. The industrial giant says it will hire 400 software engineers to work at the center, which will be located in San Ramon, Calif., near Silicon Valley. The new staffers will focus on developing software to run intelligent machines and equipment, speeding the pace of innovation, collaboration, and commercialization of new technologies.

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Bringing Good Things to Life

The investment in what it refers to as the “Industrial Internet” will likely be money well spent for the cash-rich Fairfield, Conn.-based multinational, which has balance sheet of $91 billion.

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G.E.’s core energy, healthcare and aviation segments are key to its future growth, and the company’s foray into software has the potential to make many of its own products smarter and more profitable. At the same time, smarter software would ultimately allow the Dow component to better serve worldwide customers who (plan to) use its products—from jet engines, locomotives and wind turbines to household appliances, medical systems and power plants.

A Safe Bet?

Pouring large sums of cash into these projects may be a gamble, but software is playing an increasing role in the industrial sector and the company is not alone in dipping its toes into software.

In 2007, Siemens paid $3.5 billion for software maker UGS Corp. to help it manage the development and use of products. Another rival, Swiss engineering group ABB Ltd., last year acquired energy software maker Ventyx for more than $1 billion. Whether or not software will help G.E. to get an upper hand on the competition is uncertain, but its future prospects remain encouraging.

In addition to being a blue chip safe haven stock that pays dividends, in the long term, G.E. will likely have little trouble reaching its Trefis estimate near $20, a 33% premium to the company’s share price.

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Notes:
  1. GE to Open New Global Software Headquarters in California, General Electric Co. press release, Nov. 17, 2011 []