GE Healthcare Turning To Software, Cloud Services To Spur Growth
By Jof Enriquez,
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GE Healthcare plans to drive growth internally by packaging its imaging equipment with profitable software and cloud services.
Overall sales of the company's Healthcare Systems unit declined 4 percent in 2015, on account of lower prices for x-ray machines, MRI scanners, ultrasound equipment and related products, according to GE's annual report. Despite the slump, the company is committed to growing the business internally, rather than growing mainly through acquisitions.
"When we look at the basic position of the company, we like the portfolio," said GE CEO John Flannery in an interview with Bloomberg. "So my mandate right now is to get the earnings growth going again, and there’s a lot to just better managing the portfolio we have, align it more with customers and outcomes, for a better margin rate."
Flannery is confident that dismal sales in imaging equipment will be substantially offset by the company’s promising Life Sciences and Healthcare IT businesses.
GE's life science unit provides products and services for drug discovery, biopharma, cell therapy, imaging agents, and in-vivo diagnostics. The unit grew 7 percent in the first quarter of 2016, and is projected to expand at least 10 percent overall for 2016.
The healthcare IT unit, which offers Picture Archiving System (PACS), Radiology Information System (RIS), Cardiovascular Information System (CVIS), and cloud-based radiology services, is another linchpin for future growth.
In particular, Flannery touted GE Health Cloud, which he said could grow at least 30 to 50 percent. As a healthcare-specific software-as-a-service (SaaS) product, GE Health Cloud is envisioned to connect more than 2 million imaging machines worldwide, including 500,000 GE Healthcare devices. The cloud platform hosts tools to share images between clinicians and provide insights into patient care.
"We are really trying to move from being just a technology provider to being a partner with our customers," Flannery told Bloomberg.
According to Bloomberg Intelligence analyst Karen Ubelhart, "software margins are very high" and while that segment is modestly sized now, it is growing at more than 20 percent, and could be meaningful in five years.
GE Healthcare recently inked a managed equipment service (MES) agreement to exclusively supply a major health system in the United States with advanced imaging equipment, part of a growing medtech industry trend wherein companies introduce new devices packaged with digital services to their hospital clients grappling with tighter reimbursement and pricing pressures.
Geographically, the company is bullish on emerging markets as a source of future growth. China, in particular, will be key, given the size of its healthcare market, and despite stronger competition from local companies. Flannery told Bloomberg that sales in China will probably expand by a percentage in the mid- to upper-single digits.
Related, GE Healthcare is developing value-based medical technology for developing countries, such as low-cost ultrasounds and infant warmers. Last year, it created a new unit called Sustainable Healthcare Solutions (SHS) dedicated to emerging markets.
Launching less expensive products, along with aggressive cost-cutting measures, will help GE grow the unit's operating margin to more than 18 percent in 2018, from 16.3 percent last year, Flannery had told analysts previously. GE Healthcare reported 2015 sales of $17.6 billion, accounting for 16 percent of GE's total revenues.