(Reuters) - European engineering groups ABB Ltd (>> ABB Ltd.) and Schneider Electric SE (>> Schneider Electric) are competing for General Electric Co's (>> General Electric Company) industrial solutions division, which could fetch as much as $3 billion, according to people familiar with the matter.

The divestiture would represent a key step by GE to focus on its core businesses and improve its operational performance, amid pressure from Nelson Peltz's activist hedge fund Trian Fund Management.

ABB and Schneider Electric are through to the second round of bidding for GE's industrial solutions business, a provider of primarily electrical equipment, the sources said this week. Schneider Electric is looking for a partner to break up the business should its bid prevail, in order to address any antitrust concerns, the sources added.

Private equity firms, including KKR & Co LP (>> KKR & Co. L.P.), Clayton Dubilier & Rice LLC, Warburg Pincus LLC and Onex Corp (>> ONEX Corporation), are also in the running, according to the sources.

The sources asked not to be identified because details of the sale process are confidential. Schneider Electric declined to comment, while GE, ABB, KKR, Clayton Dubilier & Rice, Warburg Pincus and Onex did not immediately respond to requests for comment.

GE reported quarterly sales and adjusted earnings results on Friday that beat analysts estimates, but its shares fell on concerns about some of its industrial businesses.

The maker of jet engines, power plants and other industrial equipment also reported a negative $1.6 billion in cash flow from industrial operating activities compared with a negative $600 million it expected for the quarter due to a $1.3 billion increase in working capital and the timing of bills to customers.

Last month, GE agreed to sell its industrial water treatment business to French waste and water group Suez SA (>> Suez Environnement) and Caisse de dépôt et placement du Québec for 3.2 billion euros (2.67 billion pounds).

(Reporting by Greg Roumeliotis in New York; Editing by Tom Brown)

By Greg Roumeliotis