Embattled industrial giant General Electric (Euronext: GNE.NX - news) announced Thursday it will cut more than 12,000 blue and white collar jobs in its GE Power unit, part of a turnaround plan launched by the new company leadership.
The layoffs will primarily hit facilities outside the United States, as part of an effort to reduce overall structural costs by $3.5 billion in 2017 and 2018, the company said.
"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," GE Power chief executive Russell Stokes said in a statement.
Labor leaders in affected countries balked at the announcement.
"GE's announcement that it wants to cut thousands of jobs in Europe serves no strategic purpose other than to maximize profits short-term for its shareholders," said Klaus Stein, director of IG Metall the metalworkers' union in Germany, where about 16 percent of GE's workforce will be eliminated.
The move comes as newly-installed chief executive John Flannery attempts to get the US industrial giant back on track as key divisions -- power and oil and gas -- struggle in the face of weak demand as they compete with the growth of renewables.
GE shares have fallen more than 40 percent in 2017, and the company has been downgraded by leading ratings agencies, including S&P and Moody's. The company's share price gained 0.9 percent to close at $17.82.
The company faces anemic demand and global overcapacity of gas turbines and other power equipment which has pressured results at GE and rivals such as Siemens (BSE: SIEMENS.BO - news) , which last month announced it would cut 6,900 jobs globally due to weak demand.
GE's job cuts affects about 18 percent of the energy unit's global workforce. The company said it also plans to reduce its capital spending and research and development.
- 'Work in progress' -
About 1,100 jobs would be lost in Britain, 1,400 in Switzerland and 1,600 in Germany, where several cities including Stuttgart and Berlin would be affected. None of the job cuts announced Thursday will affect France, according to a person familiar with the matter.
About half of the job cuts are in Europe, with the remainder around the world, said a person familiar with the matter.
GE was required under a 2015 deal to acquire the energy assets of France's Alstom (LSE: 0J2R.L - news) to increase overall French employment by 1,000 by the end of 2018, according to two people familiar with the matter.
Flannery, a longstanding GE executive promoted over the summer to the top post, last month unveiled a turnaround plan that included cutting about 6,000 jobs in its corporate division, as well as an unspecified number of layoffs in operational divisions.
The plan also included divestitures of some businesses, a dividend cut, a reduction in the size of the board of directors and a new compensation system to better tie executive pay to performance.
Flannery expressed disappointment with the performance of the Alstom business, which GE bought in 2015 for $13.5 billion.
And although he has expressed faith in the long-term prospects of GE's businesses, he warned it will take time to boost its performance, a point also emphasized in statement's about the huge layoffs.
"Power will remain a work in progress in 2018," Stokes said. "We expect market challenges to continue, but this plan will position us for 2019 and beyond."
CFRA Research kept its rating on GE shares as "hold," questioning whether the move will be enough "to turn around Power, which has struggled with poor execution and demand shifts," analyst Jim Corridore said in a note.
"We still feel GE has great assets and great technology, but we think that the company faces a long drawn out restructuring, and think it's best to wait for signs of improvement before adding to positions," Corridore said.