GE Power Has a $92 Billion Backlog. For New Boss, That’s a Problem.
https://www.wsj.com/articles/ge-power-has-a-92-billion-backlog-for-new-boss-thats-a-problem-11550068479?mod=trending_now_5
Sales team basically agreed to anything to make deals with customers. Now the backlog is a bunch of low margin sales that it will barely make a profit on, if it makes a profit at all...
If I'd be in the customers shoes, I'd not buy GE HGP parts regardless of low price. The TBC coating spallation gives me a headache.
You realize that the 'my way or the highway' was what drove many customers to look for alternatives. I know of two customers that produced HGP parts as leverage negotiations. There is PSM/MHPS in the F class space and many others in the E class space. Do they have an AGP? No, but GE has tens of sets in stock so they are hardly flying out of the door. The generation world is changing and the factors that used to drive it are no longer as relevant.
If I was looking at an LTSA today I would have to ask myself what will GE be in 2,5,10 years time? Who will I be dealing with? What financial basis will they have? We are in a very long term industry that is in terminal decline. GE have put their customers in a place where the have started asking questions and you can't go back from that.
Why is it that GE had to “bid low” for renewal of their E and F-class gas turbine entitlement CSA’s? Was it to keep the contract in the fold so they could continue their backlog financial manipulations and pull forward the earnings to keep their quarterly bonuses coming, as well as their fealty to JI and SB and the magic $2 EPS? Of course it was. But why offer pricing on these renewals that even had their customers scratching their heads? It’s not like there was or is real competition out there able to take those away from GE. How should customers react when Iconic GE sales Execs wing in on the corporate jet, a BAFO letter in hand, put it on the customers desk and say “....if I walk out of here, you’ll never see this type of deal again.” Does it make rationale business sense to offer significant CSA price reductions for tens or perhaps a hundred million in cash up front so quarterly numbers could be met? Or a financial structured contract the customer will for sure take but garunteeed not to make a cent of FCF for GE at the end of the day? I’d call this Ponzi scheme the “Whimpy Scheme”; Whimpy was always asking Popeye or Olive Oil “I’d gladly pay you Tuesday for a Hamburger today.” Money for nothin’, get ur CSA for free. All this new talk about getting price back on transactional and CSA renewals is rich when you’ve conditioned the customer irrationally to expect to-good-to-be-true prices. Synchophonic, spineless leadership at GE only worried about their stock grants and options, and really, late in the night, when it’s most quiet, they know they are on a train to nowhere......so many more shoes to drop.
This has been a known strategy since I joined the company in 2006. The Krenicki message back then was got to get prices up. I was in a meeting where Immelt acknowledged selling low and hoping to make up margin on long term service contracts was a bad long term strategy, at least from a pure capitalist point of view.
Nothing GE ever does is the smart move it's the move that makes some executive some quick cashish!
Maybe GE was trying to undercut their competitors prices and still maintain a marginal profit. Not an uncommon business practice in a tough market. It could end up to be one of the smarter moves GE has done lately.
I don't worry about sales at all while we have such critical technical issues stopping our turbines at the customers site. This is what we need to resolve really fast.
With some of these deals, GE actually made a losing deal up front in the hope of making up for it on the service in the following years. But with customers now putting fewer starts and hours on these machines, that's looking less likely. Good luck with that.
Low margin work is better than no margin work
Powergen is only a fraction of Siemens and the rest is doing reasonably well, as is Powergen services. They haven't been lead by a group of people who have been quite so inward looking and arrogant, not that they haven't had their own problems in other areas.
Having workers representatives on the board almost certainly makes sure that items such as pensions are funded. It also dodged a bullet with GE picking up Alstom. Is it perfect, no, but I know which of the two boats I would prefer to be sitting in currently.
better to have booked orders than be the competition with nothing. Look at the potential spare parts revenue years out. The walls street a$$holes need to follow some other company and stock. No balls no blue chips ...This the power business. You got low orders and when times are good you make a sh!t load of money. Aske Siemens how they are doing ?? Why is their stock doing well. Makes no sense.