GE the latest to retreat in global consumer electronics war
Nobody's saying General Electric chairman John F. Welch didn't do the logical thing in dumping the company's $3.5 billion consumer electronics division. Analysts generally are applauding Mr. Welch's move to trade the consumer electronics group, which makes TVs, radios, and video recorders, to Thomson S.A., the French electronics company, for Thomson's medical products division and several hundred million dollars.
``I'm very happy,'' says H.P. Smith, a stock analyst with Smith Barney. ``I was disappointed they didn't sell it sooner. It never makes much money, it's cyclical, and they didn't have enough market share worldwide.''
Beyond the financial considerations, the historic move was a shock for many, because GE's pullout puts an official seal on what everybody already knew - that America still isn't competing well in manufactured consumer goods.
Hopes had been raised that GE would put up a fight when it announced it would stop buying televsion sets from Matsushita and start making its own in its Bloomington, Ind., facility. The company committed $20 million to renovate the plant.
But now other, smaller firms are bound to feel a tremor, because if GE, which is traditionally one of the nation's best manufacturers, can't compete toe-to-toe in the consumer goods market, who can?
Officials at Zenith, the nation's second-largest television manufacturer, were not happy with the move. ``It is disappointing that GE failed to explore all US options before turning to a foreign buyer,'' remarked Jerry K. Perlman to the Wall Street Journal.
The move also yanks the heartstrings of those who hate to see the company take a giant step away from its roots as an innovator and producer of electronic gadgets. What would company founder Thomas Edison think?
No matter. Most observers say Welch did the right thing, because in the trench warfare that the consumer electronics market has become, the name of the game is world market share. GE just didn't have enough of it.
Even though the recent acquisition of RCA had given it 23 percent of the US market for TV sets, GE still didn't have enough of that market to be in the top tier - one of Welch's two criteria for deciding whether to stay with a product line. It also didn't fit into his long-term strategic thinking.
``I don't really think he made a full intellectual or strategic committment to the consumer electronics business,'' says Michael Howe, an analyst with Butcher & Singer, a Philadelphia brokerage.
``It was something that came along with the RCA acquisition. It's a business he said he would give two or three years to turn around, then make some tough decisions. At the same time, he didn't identify it as a major strategic area of opportunity.''
On the other hand, GE has been moving strongly into the more lucrative medical products arena, particularly diagnostic-imaging machines. This area is ``a sandbox GE wants to play in for the long haul,'' Mr. Howe says.
In a meeting with financial analysts in Florida two months ago, Welch reiterated that he would give the division two or three years to turn around. It had, in fact, made a modest profit last year following a loss in 1985.
But Welch made no ironclad guarantees. And when he was talking to Thomson chairman Alain Gomez in June about acquiring its medical products division, Mr. Gomez reportedly said he would agree only if Thomson could get GE's consumer electronics in return.
For Welch, it may finally have seemed that Japanese companies like Matsushita and European giants like N.V. Philips were just too much - and that the deal with Thomson was too good to pass up.
``Consumer Electronics, although a large business in terms of sales, has not been central to GE's strategic plan,'' Mr. Welch said in a news release. In 1986, the division accounted for 9.5 percent of GE's sales.
``It's a real comment on how far we've gotten behind,'' says Richard Hamermesh, a professor at the Harvard Business School. ``Welch has accepted the reality that the US can't compete in making televisions - something we invented.''
Certainly the move is consistent with Welch's recent actions to turn the company away from manufacturing and toward services. Welch sold GE's housware division (small appliances) to Black & Decker in December 1983, and more recently purchased a major reinsurance company and the Kidder Peabody brokerage.
``Welch didn't buy RCA because of its consumer electronics division - he bought it in spite of it,'' Smith says. ``When this opportunity waltzed in the door, it was a great opportunity to let Thomson fight it out.''