The machines rumbles on

When you look up the term "Blue Chip" in the dictionary you get the GE share code as the definition. GE is a company that has been around since the late 1800s, and has none other than Thomas Edison as one of its founders. This is what Wikipedia had to say about the formation, "General Electric was formed by the 1892 merger of Edison General Electric Company of Schenectady, New York, and Thomson-Houston Electric Company of Lynn, Massachusetts..."


Having a look on Google I found a very long list (to my surprise) of listed companies that are over 100 years old. There were 18 pages of around 23 companies, based on the list the only company bigger than GE that has been around over 100 years is Exxon Mobil. So GE is old, big and well diversified.


Currently the company has what they call their "Next list" which covers their R&D focus for the coming years. The list has six core research areas, Extreme Machines, Super Materials, Industrial Internet (where machines will be able to communicate with each other and us), Mapped Minds (unlocking how our minds work), Brilliant Factories (Factories that can adjust by themselves to have the efficient use of resources) and Energy Everywhere. GE spend 5% of revenue on R&D, which is low compared to JnJ (12%) and Google (14%) but when you consider the speed of change happening in the other two companies sectors, 5% seems fair.


On to the second quarter figures, there was a 13% rise in profit on a 3% increase in revenue, where strong earnings came from its jet engine division. This is an example of where the R&D spend has paid off, where their new "Leap" engine has an order backlog of $78 billion. The engine has components that are produced through 3D printing and have ceramic parts instead of a metal. Ceramics are light, strong and heat resistant, allowing more power and efficiencies out of the engine.


Currently 40% of GE profits come from the GE Capital division, which is less than ideal due to the volatility of financial assets earnings. GE is shifting towards being more industrial, by slimming down or selling their GE Capital divisions, where the 40% of profits is expected to be 25% by 2016. In the last quarter industrial earnings were up 9% and GE Capital were down 5%, highlighting the move away from Capital.


Part of the restricting of the company can be seen through the purchase of French company Alstom and through the upcoming IPO of one of GE Capital's company's, Synchrony. GE is not going to shoot the lights out, but if I had to bet on a company being around for another 100 years my money would be on it. This is a solid stock for a long term portfolio.