By John Revill and Alwyn Scott
ZURICH/LAS VEGAS (Reuters) - General Electric Co (N:GE) said Thursday it is axing 12,000 jobs at its global power business, the struggling industrial conglomerate's latest effort to shrink itself into a more focused company.
The U.S. company launched the cuts to save $1 billion in 2018 at its Power business, saying it expects dwindling demand for fossil fuel power plants to continue. GE's cuts follow a decision by rival Siemens AG (DE:SIEGn) to slash 6,900 jobs in the face of a global shift by electric utilities away from fossil fuels to renewable sources of energy such as wind and solar.
GE did not give a breakdown of the job cuts, which represent about 4 percent of its overall workforce of 295,000, saying only that they would be primarily outside the United States. The cuts represent about 18 percent of GE's Power business, GE said.
The announcement cast a spotlight on GE's decision to spend 9.7 billion euros ($10.7 billion when the deal closed in 2015) on the energy business of France's Alstom (PA:ALSO). The deal rounded out GE Power's portfolio by adding steam and nuclear capabilities to its mainly natural gas turbine power business.
But the purchase came just as demand for new power plants was slowing, in part due to competition from wind and solar systems.
"Traditional power markets including gas and coal have softened," GE said on Thursday, explaining the decision for the job cuts.
Rumors of sweeping job cuts were confirmed by labor union sources on Wednesday, with staff in Switzerland, Germany and Britain among those badly hit.
Unite, the largest trade union in Britain and Ireland, said the announcement put 1,100 jobs at risk and it vowed to fight against any compulsory layoffs in the UK.
GE risks "cutting too far, too fast," to deal with the changing power market.
But GE said the cuts were essential, since sales of new power plants are falling. Industry estimates expect sales of about 110 to 120 new gas-powered turbines a year, but capacity at GE and other major suppliers is about four times that.
"This decision was painful but necessary for GE Power to respond to the disruption in the power market, which is driving significantly lower volumes in products and services," said Russell Stokes, head of GE Power.
"Power will remain a work in progress in 2018. We expect market challenges to continue, but this plan will position us for 2019 and beyond."
A senior GE executive said jobs in France would not be hit because of an agreement when GE purchased Alstom.
GE shares, part of the Dow Jones Industrial Average (DJI), were up 1.4 percent at $17.92 in midday trading.
SHRINKING EMPIRE
New GE Chief Executive John Flannery last month outlined plans to shrink GE's sprawling empire of businesses built up by predecessors Jeff Immelt and Jack Welch, whose strategy was based on spreading risk across a broad range of industries.
GE has previously said it would exit its lighting, transportation, industrial solutions and electrical grid businesses. It also plans to ditch its 62.5-percent stake in oilfield services company Baker Hughes (N:BHGE).
In Thursday's layoffs, nearly a third of the company's 4,500-strong Swiss workforce could be cut, while 16 percent of staff in Germany are also likely to be axed.
GE said it had begun talks with labor leaders about the steps.
Union leaders in Germany reacted angrily to the job cuts.
"The announcement by GE that it wants to cut thousands of jobs across Europe is neither strategically nor economically justifiable," said Klaus Stein, the representative of the IG Metall Union at GE's plant in Mannheim.
"We are not going to accept this, and we will fight ... to preserve jobs."
Demand for new thermal power plants dramatically dropped in all rich countries, GE said, while traditional utility customers have reduced their investments due to market deterioration and uncertainty about future climate policy measures.
Hardly any new power station projects had been commissioned in Germany in recent years, GE said. Heightened Asian competition had also increased price pressures.