General Electric And The Internet Of Things

Oct.21.13 | About: General Electric (GE)

Dwar Ev ceremoniously soldered the final connection with gold. The eyes of a dozen television cameras watched him and the subether bore throughout the universe a dozen pictures of what he was doing.

He straightened and nodded to Dwar Reyn, then moved to a position beside the switch that would complete the contact when he threw it.

The switch that would connect, all at once, all of the monster computing machines of all the populated planets in the universe -- ninety-six billion planets -- into the supercircuit that would connect them all into one supercalculator, one cybernetics machine that would combine all the knowledge of all the galaxies.

Dwar Reyn spoke briefly to the watching and listening trillions. Then after a moment's silence he said, 'Now, Dwar Ev.'

Dwar Ev threw the switch. There was a mighty hum, the surge of power from ninety-six billion planets. Lights flashed and quieted along the miles-long panel.

Dwar Ev stepped back and drew a deep breath. 'The honor of asking the first question is yours, Dwar Reyn.'

'Thank you,' said Dwar Reyn. 'It shall be a question which no single cybernetics machine has been able to answer.'

He turned to face the machine. 'Is there a God?'

The mighty voice answered without hesitation, without the clicking of a single relay.

'Yes, now there is a God.' Fredric Brown - "Answer", 1954

If Fredric Brown was still alive today, he would have recognized his creation in General Electric's (NYSE:GE) new initiative benignly dubbed "The Industrial Internet".

The Industrial Internet reflects GE's hope that integrating networked sensors into locomotives, jet engines, MRI machines, and all other equipment that the company sells, will result in a constant stream of decipherable big data that could allow client companies squeeze more efficiency out of their GE's purchased assets.

The basic concept of using internet connected sensors to communicate information from machinery has been around for years. Already billions of processors are embedded in our smartphones, cars, appliances, buildings and the environment.

These sensors send out streams of data about their surroundings which are transmitted to remote data centers in the cloud. Companies have already developed smart electric grids that can measure our homes' use of power and have developed mobile apps that are "spatially aware."

Over the next decade, the physical world will become even more overlaid with devices for sending and receiving information in what Larry Smarr, founding director of the California Institute for Telecommunications and Information Technology, calls the "sensor-aware planetary computer."

GE already has access to some of the biggest industrial data sets, the company has been collecting them for years to boost sales and improve productivity of its machines.

Over the past three years, GE invested $1.5 billion in this new initiative of rethinking new ways of collecting, manipulating and interpreting more data sets in a way that can drive even more productivity to its clients.

GE believes the new initiative could drive its clients' costs down by 1% across the board, which would be more than enough to offset the cost of the millions of sensors the company plans to add to its products and probably enough for its client companies to pass some savings on to their consumers.

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GE's revenue has been on a declining trend lately. With the potential of economic growth uncertain, GE hopes the new initiative could boost sales to existing clients and help it acquire even more clients in the future.

According to GE, there are over 3 million major "things that spin" in today's global industrial asset base and those are just a subset of the devices where the Industrial Internet can take hold. Adding sensors and connecting all these "things" together, could add a sizable $10-15 trillion to global GDP.

The deeper meshing of the digital world with the world of machines holds the potential to lift the global industry to higher levels of efficiency. According to GE, the Industrial Internet could boost annual productivity growth in the US by 1-1.5%, bringing it back to its Internet Revolution peaks.

The convergence of the global industrial system with the power of advanced computing, analytics and low-cost sensing can add new levels of connectivity facilitated by the Internet. The innovation promise to bring greater speed and efficiency to industries as diverse as aviation, rail transportation, power generation, oil and gas development, and health care delivery.

Source: GE

According to GE, with better health outcomes at lower cost, substantial savings in fuel and energy, and better performing and longer-lived physical assets, the Industrial Internet will deliver new efficiency gains and will accelerate productivity growth the same way the Industrial Revolution and the Internet Revolution did.

Since increased productivity means faster improvement in income and living standards, the company predicts that over the next twenty years the Industrial Internet could raise average incomes by an impressive 25% to 40% of today's levels.

However, according to Jessica Leber at MIT Technology Review, GE may find that it's not always easy to apply big-data techniques to industrial problems. Retailer could relatively easy discover correlations in customer data, such correlations might not be that obvious in an industrial setting.

But GE has already demonstrated how such efficiencies can be delivered in the healthcare setting. At the Mount Sinai Medical Center in New York, GE put sensors and transmitters on hospital beds and equipment to keep track of which ones are in use. GE claims the 1,100-bed hospital could admit 10,000 more patients a year using the value added information.

GE estimates that a 1% gain in fuel efficiency could be worth $2 billion a year to the aviation industry and twice that to the power industry. The company's gas turbines and other utility equipment are already involved in delivering 25% of the world's electricity.

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Over the past five years GE's revenue declined by over 21%. Over the same period its share price increased 30%. Part of the increase in price could be attributed to the Fed's generous quantitative easing program. If the currency is being debased, it is always wise to park your cash in asset backed securities.

GE's plan to add digitally intelligent sensors to all the equipment it produces will turn them to intelligent machines in their own right. These intelligent machines are bound to interact intelligently with each other, with the people around them and with the physical world at large.

The new vision holds the promise of stronger economic growth, better and more jobs and rising living standards. If such a vision materializes, both the company, its clients and the economy as a whole stand to benefit.

During Q3-2013 conference call, Jeff Immelt, GE's Chief Executive Officer, announced a good third quarter in an improving environment. Orders grew 19% with growth markets up 22%, the US up 18% and Europe up 17%.

Earnings per share were up 18%, excluding unusual items and backlog reached $229 billion. GE's shares rose 3.6% on the news. If the trend continues and GE's prophecy comes true, we might be looking at yet another GE turnaround story, but this time we might not be the only sentient spectators.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.