Lamps include a wide variety of typesincandescent, fluorescent, photo, miniature and high intensity lamps. Consequently, markets and customers are extremely varied, ranging from household users served through retail outlets to original equipment manufacturers, such as the automotive industry. Competition arises from a relatively small number of major firms and is based principally on price, effective distribution and product innovation. Unlike Major Appliances, the nature of the products and market diversify make the lamp business less sensitive to economic cycles. Housewares and Audio Products include small appliances for personal care, garment care and food preparation; clocks and timers; home security devices; and radio and related products. The makeup of the product mix is closely linked to changes in consumer life style. With many manufacturers in the field, price competition (and consequently cost control) and product innovation, as well as merchandising skills, are important factors. Television Receivers are sold principally in the domestic market. Industry profitability has been generally poor in recent years. General Electric experiences strong competition from several large producers, some of which have a stronger market position in these products than General Electric. Markets for Consumer products can be adversely affected by fluctuations in consumer disposable income and housing construction, whereas profitability can be adversely influenced by the effects of inflation on production costs and factors which may inhibit price increases, such as the government price controls in recent years. In addition, these products must increasingly be designed for optimal energy use and to conform with a growing multiplicity of federal and state product regulations. Industrial Components & Systems Industrial Components and Systems include a wide variety of products made by a number of manufacturing units for use within General Electric as well as for sale to external customers. These products include those used by manufacturers as part of their own productive capacity; components and materials incorporated by manufacturers and contractors into their own end products; and specialized equipment, systems, and services. Components (appliance controls, small motors and electronic components) are used internally and are sold externally, principally to manufacturers of original equipment and distributors. Competition includes other component producers, integrated manufacturers, and customers' in-house capability. The markets for these products are extremely price competitive, putting emphasis on economies of scale and manufacturing technology. Other characteristics include rapidly changing technology, the cyclical nature of the consumer end use market, and backward integration by major customers who represent a large portion of the sales of individual motor products. Materials (engineering plastics, silicones, industrial cutting materials and laminated and insulating materials), derived from General Electric technology, serve a diversified customer base in the United States and abroad. Most customers are original equipment manufacturers or custom fabricators. Market opportunities are created by functional replacement which provides customers with an improved material at lower cost. The business is characterized by technological innovation and heavy capital investment. Competition involves important emphasis on efficient manufacturing process implementation and strong market and application development. Competitors include large, technically oriented suppliers of the same, as well as functionally equivalent, materials. Industrial Capital Equipment (industrial and residential construction, automation and transportation) includes electrical components for the construction industry, motors and drives for general industrial use and rail transportation equipment. The electrical contractor and capital equipment markets are highly cyclical. The most important transportation products are (i) components for off-highway vehicles sold to industrial users and (ii) locomotives which are principally sold to both domestic and foreign railroads. Other products include transportation equipment sold to state and urban transit authorities. Specialized Equipment (medical and communications) includes (i) diagnostic imaging equipment, including x-ray machines, sold to hospitals and medical facilities, and (ii) mobile radio and data communication systems sold to governmental agencies and to a variety of commercial customers. Technical innovation, high product performance, service and competitive pricing are especially important for both types of equipment. 28 Services include (i) the maintenance, inspection, repair and rebuilding of electrical and mechanical apparatus produced by General Electric and others, and (ii) time-sharing computing and remote data processing. Distribution includes a network of electrical supply houses offering products of General Electric and other manufacturers to electrical contractors and industrial and commercial customers. Business prospects for this category as a whole tend to respond to general trends in the nation's economy, although the relative impact of these trends on any particular group of related products and services may vary. Each such group tends to be affected by differing factors influencing the industrial sector. For example, Components can be affected by broad trends in demand for consumer products which may be in an economic phase different from trends in capital expenditures by industrial customers, which substantially influence Industrial Capital Equipment. In contrast, the positive business pattern of Services over the past several years has not been appreciably affected by changes in the general economy. Industrial Power Equipment The Industrial Power Equipment category is comprised principally of products for the generation and distribution of electricity, and is substantially oriented towards electric utility customers. These products differ in contribution to sales and earnings, market position and production cycle. Although the market for these products is world-wide, the major portion of sales is domestic. The market is sensitive to electric power consumption, which fluctuates with changes in the general economic environment; it is also sensitive to the financial condition of the electric utility industry. By reason of the recent economic recession, there was no significant growth in utility electrical load during the years 1974 and 1975. This factor, together with the substantial increases in generating capacity from delivery of prior years' orders, has resulted in high utility reserve margins. While the order backlog for steam turbines and nuclear equipment remains very large, the combination of high reserve margins and uncertainty about future load growth may result in a low volume of new orders for the next few years, and perhaps some deferments and cancellations in addition to those referred to below under "Orders Backlog." Steam Turbine-Generators, the largest business in this category, convert energy produced by fossil boilers (fueled by coal, oil or gas) or nuclear reactors (fueled by uranium) into electrical or mechanical power. In addition to the electric utility industry, the commercial marine market, the US Navy and private industry (for plant power systems) are customers. While General Electric is an important factor in each of these markets, competition is highly concentrated and world-wide. Profitability can be substantially influenced by materials inflation and high working capital needs, due to the long production cycle. Gas Turbines are used principally as packaged power plants for electric utility service and also for mechanical drive applications such as pipeline pumping and marine propulsion. International sales are a significant portion of the business, with intense and world-wide competition. Because utility purchases of gas turbines are primarily for peak load service, utility demand is likely to remain depressed until reserve margins are reduced. Nuclear products include power reactors (of the boiling water type) and nuclear fuel assemblies. General Electric is spending significant amounts on engineering and development in support of nuclear projects now in the backlog. These expenditures, when coupled with the effects of deferments of shipments and cancellations of orders, are likely to result in several years during which the nuclear business will operate at a loss whereas it has been marginally profitable in recent years. It is management's belief that any such losses will not impact materially on General Electric's profitability. While General Electric management believes that nuclear power must be increasingly utilized if the U.S. is to achieve a greater measure of energy self-sufficiency, the use of nuclear power has become a subject of controversy, both political and social. The future growth of nuclear power will depend not merely on a resumption of utility demand for generating equipment, but also on favorable public acceptance of nuclear power and on government action to resolve present uncertainties regarding key segments of the nuclear fuel cycle, such as use of plutonium, spent fuel reprocessing and radioactive waste storage. In view of the growing uncertainties confronting the nuclear field, General Electric is considering some fundamental changes in contracting practices and other aspects of its participation in the nuclear business; no decision has been reached regarding the nature or timing of any such changes. 29