General Electric to Benefit From Gas Turbine Boom

Its always good when a company raises its revenue growth forecast. This is especially true when the company is one of the world's largest. General Electric (NYSE: GE) recently raised its 2012 industrial revenue growth forecast to 10%, the high end of the previous 5-10% forecast. This news sent its stock price to levels not seen the autumn of 2008. Much of what powered that increased revenue forecast was GE's forecast of a boom in demand by power companies globally for natural gas-fired turbines as they increasingly turn to gas to provide baseload electricity.

In the past few days, the company announced $1.2 billion in new orders for 19 of its recently-developed, heavy-duty gas turbines from Saudi Arabia, Japan and the United States. General Electric has been investing heavily into its “flexefficiency” turbines and technology designed to allow rapid ramp up and ramp down in power output while using gas efficiently. GE has developed technology for both 50 hertz and 60 hertz, the two main frequencies for power grids around the globe. It has placed a big bet on natural gas and its future in the past few years, including acquisitions worth $11 billion in 2010-11. Now it looks as if that bet is just beginning to pay off.

Among the clients buying the GE turbines here in the United States are Hess Corporation, Xcel Energy (NYSE: XEL) and an unnamed industrial client. General Electric is supplying two gas turbines to the Cherokee Clean Air Clean Jobs Project in Denver, Colorado which will convert an existing coal power plant into a cleaner burning natural gas combined-cycle facility. Carbon dioxide emissions are expected to be lowered by half. The new plant will be owned and operated by Public Service Company of Colorado, a subsidiary of Xcel Energy.

General Electric is not alone in its belief in the bright future for gas turbine power. Its major competitor in the sector, Germany's Siemens AG ADR (NYSE: SI), also thinks along the same lines. Earlier this year, Siemens announced it had earmarked more than $1.3 billion to expand production of gas turbines and hopefully fend off GE as they jostle for top spot in the sector. This division is the largest of the German company's 10 main divisions, accounting for about 14 percent of the company's revenues last year.

In recent years, Siemens has almost doubled its market share to 40% in the large turbine segment for power exceeding 100 megawatts. It also currently has the at least 10-unit-a-year market to itself as GE and Japan's Mitsuibishi Heavy Industries (NASDAQOTH: MHVYF.PK) are still developing their offerings for that segment of the market.

Another competitor of GE and Siemens in the turbine market is France's Alstom SA ADR (NASDAQOTH: ALSMY.PK), but it is more focused on the steam turbine market. However, even Alstom has launched its upgraded GT24 gas turbine and KA24 combined-cycle power plant which the firm says is a response to the increasing demand for gas-fired power generation around the world.

The upturn in gas turbine business for GE, Siemens and the rest is being driven by four factors: the global shale boom which is making natural gas cheap and plentiful, fast-growing power needs in the emerging economies, concerns about nuclear energy in the wake of the Fukushima disaster and stricter emissions rules in the United States.

Environmental regulations alone will lead to roughly half of all U.S. coal power plants being upgraded or replaced in the next decade. General Electric itself forecasts that more U.S. power plants will be fueled with natural gas rather than with coal by 2017. As for the emerging world, as shale gas deposits are developed in China and elsewhere, the markets for gas turbines will expand even further. This bodes well for Siemens and GE, as it moves back toward to its industrial roots and away from financial services in the years ahead.

This article originally appeared on the Motley Fool Blog Network. Make sure to read all my articles for the Motley Fool at http://beta.fool.com/tdalmoe/.

21st Century Manufacturing: 3D Printing

Manufacturing is usually thought of by most investors as a dull, stodgy, slow growth, low profits sector that is best avoided. But if investors assume that to be true, they will be missing out on an exciting new sector of manufacturing, one that uses the latest technologies and which promises to increase manufacturing precision while lowering costs by billions of dollars for manufacturers worldwide.

That sector is high-tech additive or personalized manufacturing, otherwise known as 3D printing. 3D printing was invented in 1984 by Charles Hull. Such machines are based on the latest advances in electronics, laser technology and chemistry whose purpose is to build up complex shapes from granules of plastics or metals. The technology has exploded in recent years, having been used to build everything ranging from car bodies to dental implants to jet engines to jewelry to transducers for ultrasound scanners.

Two of the early users of 3D printing technology are global industrial powerhouses, General Electric (NYSE: GE) and ABB Ltd. (NYSE: ABB). GE's CEO Jeff Immelt was recently quoted in a Financial Times article about 3D printing as saying “It's going to be be big” as he pointed out how this new exciting area of manufacturing will shorten cycle times between designing products and actually making them. ABB's CEO Joe Hogan said in the same article “3D printing means it's possible to go from concept to reality in just a few hours. That's a big help when you are trying to be quicker and more reactive.”

The Economist backed up both CEOs, citing that 20 percent of all output from 3D printers is currently producing final products rather than prototypes. It went on to say that, by 2020, that figure will rise to more than 50 percent.

This technology also lowers the amount of infrastructure needed for manufacturing, allowing emerging companies and countries to become a serious player in manufacturing much more easily and quickly. And in developed countries, it will allow mass personalization of goods, perhaps marking the return of artisan production workers which haven't been seen in most rich nations for many decades.

Investors may be curious as to who the current leaders are in this new technology. Additive manufacturing machines are being made by a number of companies around the world such as Germany's EOS, the UK's Renishaw and Sweden's Arcam along with several firms right here in the US. These companies include the likes of Stratasys (Nasdaq: SSYS) and 3D Systems (NYSE: DDD).

The key here for investors is that this is an industry still in its infancy. Industry figures put sales of 3D printing equipment last year at only about $500 million. This is less than 1 percent of sales of conventional machine tools. Total revenues for the entire industry, including materials and services, amounted to about $1.7 billion in 2011. But it is a fast-growth technology industry.....

That is why, as institutional investors have caught on, that both 3D Systems and Stratasys are both selling at about 35 times this year's earnings. Another reason for their valuation level is the possibility of a takeover by a large company like GE or Hewlett-Packard (NYSE: HPQ), the largest printer company in the world.

Hewlett-Packard, which signed a collaboration agreement with Stratasys in 2010, may not want to follow the path Kodak took. Kodak was the dominant player in photography, but missed out on the digital camera revolution and become an obsolete company. HP likely does not want to miss out on this revolution and may just buy one of the main players in the sector.

Bottom line for investors? This 3D printing technology will most likely be more disruptive than expected and be a gold mine for those companies in this field. The stocks of these companies should turn out to be bargains for those who hold on to the shares for years down the road.

This article was originally written for the Motley Fool Blog Network. Make sure to read all of my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/.

GE's Billion Dollar Gamble on Reshoring

The trend over the past several decades has been unmistakeable...manufacturing jobs in the United States have been moved offshore. That trend can easily be seen in one of America's blue chip companies, General Electric (NYSE: GE). At the end of 2011, a good number of its employees – 170,000 of 301,000 total – resided in countries like South Korea, Mexico and China.

However, GE has been one of the major companies leading the charge to bring manufacturing jobs back home to the U.S or 'reshoring'. Since 2009, the company has created 13,500 new jobs in this country with 11,000 of them in manufacturing. Overall, the United States has added 429,000 factory jobs in the past two years, barely replacing a fifth of the jobs lost during the recession.

And now GE is placing a large bet - $1 billion – on the company's domestic appliance business. This business, together with its lighting business, accounts for 6 percent of General Electric's revenues.

This will be a tough mountain for GE to climb. The North American appliances business is pretty much a no growth business. According to two of GE's appliances rivals, Whirlpool Corporation (NYSE: WHR) and Electrolux AB ADR (OTC: ELUXY) total sales in North America fell by about a quarter between 2006 and 2011. Whirlpool expects sales this year to grow by no more than 3 percent. No surprise then that this division's profit margin was only 3.5 percent last year, much less than the 15 percent or higher GE's other industrial divisions achieved.

GE is moving its appliances business back onshore because it found out, in the words of the chief executive of GE Appliances Chip Blakenship, that “over time [offshoring] wasn't that sustainable a business model” after enjoying the one-off cost benefit. These benefits have largely disappeared as wages have risen in China. When adjusted for productivity, U.S. wages will be only 2.5 times Chinese wages versus 4.6 times in 2006, according to the Boston Consulting Group. In addition, GE found that an extended supply chain generates some of its own problems due to higher energy costs.

The company decision to reshore these appliance manufacturing jobs back to the U.S. was based on several factors such as $17 million in tax incentives. But the main reason was the adoption of “lean” manufacturing techniques that make its U.S. plant in Louisville, Kentucky more efficient.

The interesting note here is that these techniques were pioneered by Japanese automaker, Toyota Motors ADR (NYSE: TM). These techniques also mark a dramatic shift away from the six sigma management culture at the company instituted by former CEO Jack Welch. Instead of a top-down management style, Toyota's methods places a stress on staff at all levels to focus on raising performance.

At GE's Louisville facility, the “lean” manufacturing techniques have meant putting all the functions associated with manufacturing appliances onsite such as development, design, engineering, quality control and production. GE's CEO Jeff Immelt said that, by using these lean production techniques, its Louisville plant has cut by 68 percent the time needed to build a dishwasher. Thanks to being 'lean', employment at the plant is expected to jump from about 4,100 today to 5,000 next year.

But as stated before, it will a tough go for GE. About half of all the appliances sold in the United States are imported. Korean competitors like Samsung and LG will be difficult to beat, not to mention Sweden's Electrolux and US-based Whirlpool. American workers surely hope that GE will be successful. As will its shareholders who would enjoy an upgrade in its brand if its $1 billion appliances gamble pays off.