Can R&D Save GE?

[Erik Sine]

Can R&D Save GE?

Posted by: Steve Hamm on October 19

Most of the news out of GE these days is bad. If the stories aren’t about the company’s deeply screwed up credit subsidiary, they’re about the uncertain future of the NBC Universal media and entertainment business. Now, with Comcast apparently on the verge of buying controlling interest in NBC Universal, the key to GE’s future is coming into focus: It’s the company’s core industrial businesses—which make everything from nuclear power generators and locomotives to jet engines, wind turbines, refrigerators, and health care equipment. And, of course, light bulbs.

Fortunately for GE and its investors, CEO Jeff Immelt takes innovation in the core businesses very seriously. Since he took over as CEO from Jack Welch in 2001, he has tripled the annual output of patents and doubled the company’s level of investment in overall R&D. That includes increasing the funding of basic scientific research at the labs from $315 million in 2001 to $555 million last year.

It can take years or even decades for investments in this kind of research to pay off, but Immelt and GE don’t have the luxury of time. They need to see those R&D payoffs in the next couple of years. Otherwise, GE could wind up shivering in Wall Street’s dog house for a very long time and Immelt could be out of a job.

I recently spent a day chock-full of meetings with scientists at GE’s main laboratory in Niskayuna, New York. What I saw there gave me the belief that an innovation-led surge at GE is at least in the realm of possibility. It’s no sure thing. But R&D could save GE.

GE has launched a PR spin campaign around its R&D initiatives. It invited equity analysts up to Niskayuna a couple of weeks before my visit, but got mixed reviews. While Scott Davis of Morgan Stanley recommended the stock after he came back, Sterne Agee analyst Nicholas Heymann, who didn't attend the briefing, warned that "Increasingly, the success of today's technologies can be made or broken by legislative reforms." He has a "sell" recommendation on the stock.

I don't mind being spun if there's real substance behind it--and, in this case, there is.

To me, the main thing that counts in GE's favor is it's thinking really big. A number of its research innovations could reshape entire industries. For instance, it's developing so-called continuous detonation systems for powering aircraft--which it claims could deliver 30% energy savings. A prototype is due out in 2010. "In each of the advanced technology areas, we have advances that will change the world," I was told by Michael Idelchik, vice-president for advanced technology at GE Global Research.

The science GE is working on is quite diverse, from nanotechnology and molecular imaging to organic electronics, sustainable energy, and energy conversion. In addition to Niskayuna, GE has labs in Bangalore, Shanghai, and Munich--and plans a clean energy technology center in Masdar City, Abu Dhabi; and a manufacturing technology center near Detroit. It has 2800 research employees worldwide.

The company attempts to produce advances in science that can be applied broadly across its product portfolio. Business leaders are constantly looking for adjacent markets to the ones they're already in--where they can build on their scientific domain knowledge. That's how GE was able to reinvent sodium battery chemistry and begin quickly developing batteries for locomotives and heavy-duty vehicles.

One of the coolest projects they showed me was a process for manufacturing organic light-emitting diodes (OLEDs)for general lighting applications. The goal is to create lighting that is bright, efficient, cheap, and long lasting. In a pilot manufacturing facility in Niskayuna, they print OLED material on sheets of clear plastic then seal it from air and water. It's a bit like the way a newspaper it printed--with the roll of plastic running continuously through a series of machines. Anil Duggal, the research manager in charge of the project, showed me how durable the end product is. He used a paper punch to poke several holes in a sheet of lighting material. The punch knocked out the light where it cut but left it intact all around. "There are no light bulbs you can do that with! Duggal told me.

He hopes GE will have OLED lights on the market in 2011, but, first, there's a little bit of science to attend to. His team has to improve the efficiency of the light so it matches that of compact fluorescent lights (CFLs). It also has to come up with a better coating for keeping out the elements.

Another intriguing GE research project is in the nanotechnology sphere. Margaret Blohm, the advanced technology program leader for nanotechnology, is experimenting with using nano-materials to prevent ice from building up in jet engines. GE scientists adapted the idea from nature. They studied a lotus flower leaf to understand how the surface of the leaf repels water. Because of the leaf's unusual texture, the tension on the surface of the water droplet is not broken, so it slides off. GE scientists believe that if they can engineer a synthetic surface like this for jet engine parts and wind turbines, the force of the wind will prevent ice from sticking to the surface. That would mean they could make engines that are lighter, using less material and requiring less energy.

As with OLEDs, there's still a bunch of science and testing to be done on the de-icing technology. But these initiatives and several others at the labs seem to be well-along in the development process. Some big-revenue projects seem likely to come down the pike in the next two or three years.

Will GE innovation produce enough revenue growth fast enough? That's still to be proven. But at least GE has made the investments and its moving aggressively. It's possible that a GE turnaround could begin to gain traction as the world comes out of its deep slump.

[YYZ]

OLEDs represent huge possibilities, but I think even 2011 is extremely optimistic. Specialty products maybe, with mass market stuff at least 2 years or more behind that.

[manuellynch]

I saw an OLED demo once that was impressive but after the sheet was put into a container and oxygen was removed- way off from making it in thr real world but may be great for medical or military displays

Edited October 23, 2009 by High Voltage