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GE slices itself into four parts

Bloomberg News reports that General Electric Co. (NYSE: GE) has cut the number of its business units from six to four. This change in organization structure should trim its overhead. But it could make it more difficult for investors to compare GE's performance before the reorganization to how it's doing after the change in structure.

The key unresolved question is whether the new structure will boost GE's revenue and profit growth. Bloomberg reports that the four new units will be GE Technology Infrastructure, GE Energy Infrastructure, GE Capital and NBC Universal. GE formerly had six units -- Reuters reports that GE Health Care, which was one of the six former divisions, now falls under the new Technology Infrastructure unit. GE's $13 billion consumer and industrial businesses, which include washing machines and lighting, is not part of the new structure -- in 2009 GE wants to spin those businesses off to shareholders.

Bloomberg reports that in May, GE CEO Jeff Immelt said that he intends to change GE's product mix to about 60% non-financial by 2010 -- far more than it is today. In 2007, GE's finance-related businesses accounted for 44% of net income and 53% of profit from continuing operations. It is not clear whether the new organization structure will help revive GE's revenue and profit growth.

But if Immelt can divest or close its slowest growing units and use the proceeds to invest in ones with the greatest growth potential, then eventually its stock should respond favorably. Since it's lost $81 billion in stock market value since April, GE has a long way to go to return to where it was at its peak.

And if GE's earnings over the next several quarters grow more rapidly than the 0% growth it showed in the second quarter, the stock may in retrospect look cheap today. The new structure looks like it will eliminate some overhead. But its impact on earnings growth is hard to discern.

Investors are either on their way to the Hamptons or they don't think the announcement will move the stock in the near term. GE closed unchanged for the day.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns GE shares.

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Last updated: December 02, 2008: 06:32 AM

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