NEW YORK — General Electric, whose new leadership is moving to eliminate bloat and grapple with the fallout from earlier, ill-timed decisions, is taking drastic steps to keep pace with seismic shifts in the global energy industry.
On Thursday the Boston-based company said it would cut 12,000 jobs in its power division, reducing the size of the unit’s workforce by 18 percent, as part of a push to compete with international rivals in a saturated natural gas market, adjust to “softening” in the oil and gas sectors, and stay abreast of the growing demand for renewable energy.
The GE employees losing their jobs work in production and professional roles. They will be notified about whether they are being let go over the next 18 months. About half are based in Europe.
With the latest job cuts, GE now has taken the lead among US companies in announcing the most job reductions this year. The beleaguered manufacturer has eliminated a total of 19,242 jobs in 2017. The latest reduction pushed GE past General Motors, which has announced a series of cuts throughout the year amid slow demand for autos.
Solar and wind energy technology is increasingly being deployed around the world, in large part because of lower production costs. Renewable energy sources are expected to attract two-thirds of global investment in power plants until 2040 and to account for as much as 40 percent of total power generation by then, according to the International Energy Agency.
In much of the world, more coal is being burned and shipped this year, compared with 2016. Still, long-term trends favor renewable sources and natural gas in developed and developing countries. Over time, natural gas will probably be pushed from a primary role to a supporting, balancing one as alternative energy rises in prominence.
Amid the changes in production, demand for power is increasing at a slower pace as appliances and commercial buildings become more energy-efficient. The shifting dynamics are roiling the huge conglomerates that serve the industry.
Siemens, GE’s main rival, said last month that it was cutting 6,900 jobs worldwide in units focused on power plant technology, generators, and large electrical motors. In making the announcement, Siemens said that “the power generation industry is experiencing disruption of unprecedented scope and speed.”
GE said its cuts would help the company save $1 billion as it moves to reduce costs by $3.5 billion this year and next across its vast businesses. “This decision was painful but necessary for GE Power to respond to the disruption in the power market,” Russell Stokes, head of the company’s power division, said in a statement. “We expect market challenges to continue, but this plan will position us for 2019 and beyond.”
Although GE estimates that its equipment generates more than 30 percent of the world’s electricity, analysts at Stifel wrote in a note to clients on Thursday that a streamlining of the power division was “long overdue” and an “obvious next step” to improve the company’s cash flow and profit margins.
“GE Power is right-sizing the business for these realities,” Stifel analysts wrote.
John Flannery, GE’s new chief executive, has called 2018 a “reset year” for a company that has ballooned into an enormous enterprise with stakes in medical-imaging equipment, jet engines, and other sectors.
Investors have criticized GE for overspending, and its financial standing has suffered. The company’s stock has plunged more than 40 percent this year, the worst performance, by far, on the Dow Jones industrial average. Last month, GE said it would cut its dividend — for only the second time since the Great Depression.
Flannery had said he was “deeply disappointed” by the company’s third-quarter results, which were announced in October and showed a steep decline in profits.
GE’s oil and gas business, which the company tried to expand just as oil prices sank, has weighed down earnings. But the power division’s poor performance was a nasty surprise.
Two years ago, GE spent $13.5 billion to buy the power division of Alstom, a French company. The unit, GE’s largest industrial acquisition at the time, has since then “clearly performed below our expectations” and offered only single-digit returns, Flannery told investors last month.Material from Bloomberg News was used in this report.