Wednesday, May 28, 2008
There has been a great deal of talk recently about GE selling its appliances division. Some observers seem to think that selling off this "low margin, low growth" business will help boost the company's stock price, which has languished for some time, and which took a hit when the firm missed its earnings target last quarter. However, I think that there are three big questions that must be answered before making a judgment on a potential appliance division sale. First, can we really expect the stock to make a substantial leap when the appliance division only accounts for $7 billion of the firm's $173 billion in annual revenue? Talk about a drop in the bucket. I do not think the sale of appliances is a panacea for the stock price. Second, how will GE deal with the brand name? A potential buyer clearly would want the GE brand name, which has such significance with the consumer. Allowing a buyer to license the brand name is risky. Third, and most importantly, what precisely are GE's criteria moving forward for what should and should not be part of the company's portfolio? Until GE answers that question clearly and concisely, I do not think investors will be completely pleased. It's not enough to say that the firm wants to be in higher growth, higher margin businesses, as some observers suggest that GE should be. That's not very limiting. Does any high growth, high margin business on earth fit at GE? Moreover, what about some of the other businesses within the portfolio, such as NBC? Broadcast networks clearly are not a high growth, promising business these days. Why does it stay and appliances have to leave? Clear answers to these questions must be provided for investors to feel comfortable with the GE strategy moving forward.