The market has been saying that the emperor has no clothes at GEC Plc for over a decade now. A cash-bloated 10.0bn Brithsh pounds- a-year company, it has seen its share price stuck resolutely between 250 pence and 400 pence a share, a monument of underachievement. Can the new man at the helm, George Simpson, do better? It is horribly tempting to say that if one wanted to turn GEC into a high-earning, fast-growing company, one would prefer not to start with the GEC of today. Years ago, when one called up one part of GEC, if one mentioned a related development in another part of the company, the man at the other end of the phone would not have a clue what one was talking about. For GEC was never an integrated electrical and electronics group, it was rather a rag-bag collection of disparate businesses with a host of potential synergies between them that never seemed to be explored, let alone exploited. And if anything, in the past few years, the situation has got even worse.
150 subsidiaries
It is reported that when George Simpson was trying to prepare himself to slide into the hot seat, he asked repeatedly for an organisational chart, and was finally sent the sales brochures of GEC’s 150 subsidiaries. As a result, instead of being a corporate jewel serving the GEC Marconi defense business and the GEC Plessey Telecommunications businesses, A B Dick’s office and print systems business in the US and the medical equipment and weighing systems business – all of which make products stuffed with silicon these days – GEC Plessey Semiconductors Ltd is a candidate for sale. The company is a licensee for the most internationally successful British chip yet, the Advanced RISC Machines Ltd ARM, but can anyone name a single GEC product that uses the ARM? If there are any, why don’t we – why does nobody – know about them? Among GEC’s more successful companies is the aforementioned GEC Plessey Telecommunications or GPT. It may be relatively successful, but it is in an embarrassingly untenable position. It is 40% owned by Siemens AG, and Siemens makes its own counterpart to almost everything that GPT makes – yet the Siemens products are completely different and incompatible. L M Ericsson Telefon AB and Nokia Oy have effectively demonstrated that, starting from ground zero, European companies can create a world-class global business in cellular telephones. Looking through the ads for digital cellular service that infest the newspapers, how many Siemens phones do you see advertised? Given all the advantages of decades of telephone set manufacture, with a captive in-house chip shop designing and making precisely the class of chip that enables cellular phones to be miniaturized and to draw minimum power, and with far more financial resources than the regularly cash-strapped Scandinavians, why is GEC not up there with the Scands and Motorola Inc (which even makes the things in Britain) as a world leader in cellular telephones? Woeful record It’s not as if the company had rejected cellular telephony as something outside its sphere of influence and interest – after all, a decade ago, it was in there pitching for a cellular licence. Given GEC’s woeful record, the nation has to be grateful that the licence went to one of its arch-rivals, Racal Electronics Plc. But GPT’s failure to develop even one major product line that does not have a rival in the Siemens portfolio implied that, regardless of the ownership structure, it is doomed to become no more than an outpost of Siemens’ telecommunications business. There have been occasions over the past decade when GEC has appeared to shake off its lethargy and vow to do better. There was the flurry of activity a few years back that saw most of the white goods businesses being dumped off into a joint venture with US namesake General Electric Co Inc, and the power station buidling and power generation equipment manufacture consigned to a joint venture with Alcatel Alsthom SA. Those ventures left GEC with 50% of big companies at the price of ceding effective control. And more recently, we were promised that GEC Marconi, which as a jewel in the crown begins to look thoroughly tarnished as developed countries around the world cut back on defence spending, would energetically start beating its swords into plowshares and converting its technology to civil applications. Since then, the silence on that front has been deafening. GEC would very much like to merge Marconi with Thomson-CSF SA, but the absurd and deeply damaging mess into which the French government has plunged itself over the privatisation of Thomson condemns GEC to remain a helpless observer over the next few months.
Unexploited synergies
Now we have the first intimations of the Simpson plan. The company is to divide into five entities – defense, telecommunications, power generation, the US ragbag, and the UK ragbag. The US collection includes Dick office equipment, medical equipment (which tried and failed to get into a joint venture with the medical systems arm of Philips Electronics NV), and Gilbarco petrol pumps – a relatively recent acquisition that does not seem to fit anywhere very neatly. Except that in the UK, there are things like the GEC Avery weighing systems business. And of course that the next generation of pumps will be tied in and networked with payment systems, will be made primarily of integrated circuits, likely tied to retail measurement systems. The same kinds of cross-connections can be made between many of GEC’s apparently disparate and unconnected businesses, and most of them radiate out from a core chip business and a core communications business – GEC is not big in data communications equipment but all the networking systems integration skills are present within the company and the company has the resources to develop its own standards-based embedded networking system of the Echelon Corp LONworks type. The conclusion clearly has to be that GEC is a vast collection of unexploited synergies, and that these urgently demand to be explored before anything that could prove to be a lynchpin is sold.
