Restructuring Sony
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Case Details:
Case Code : BSTR063
Case Length : 19 Pages
Period : 1994 - 2003
Organization : Sony Corp
Pub Date : 2003
Teaching Note : Available
Countries : Japan
Industry : Consumer Electronics
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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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"As conditions change, Sony has to change accordingly, because their conventional strategy won't transcend to the Internet-enabled model." 1
- Mitchell Levy, author of 'The Value Framework.'
Introduction
For the first quarter ending June 30, 2003, Japan-based Sony Corporation (Sony)2 stunned the corporate world by reporting a decline in net profit of 98%. Sony reported a net profit of ¥9.3 million (mn)3 compared to ¥1.1 billion (bn)
for the same quarter in 2002.
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Sony's revenues fell by 6.9% to ¥1.6 trillion for the corresponding period.
Analysts were of the opinion that Sony's expenditure on its restructuring
initiatives had caused a significant dent in its profitability.
In the financial year 2002-03, Sony had spent a massive ¥100 bn on restructuring. Moreover, the company had already announced in April 2003 about its plans to spend another ¥1 trillion on a major restructuring initiative in the next three years. Analysts criticized Sony's management for spending a huge amount on frequent restructuring of its consumer electronics business, which accounted for nearly two-thirds of Sony's revenues. In 2003, the sales of the consumer electronics division fell by 6.5%. Notably, Sony's business operations were restructured five times in the past nine years.
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Analysts opined that Sony's excessive focus on the maturing consumer electronics business (profit margin below 1% in 2002-03), coupled with increasing competition in the consumer electronics industry was severely affecting its profitability.
However, Sony's officials felt that the restructuring measures were delivering
the desired results. According to them, the company had shown a significant jump
in its profitability in the financial year 2002-03.
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Sony reported a net income of ¥115.52 bn in the fiscal 2002-03 compared to ¥15.31 bn in 2001-02 (Refer Table I for Sony's key financials in past 13 years). A statement issued by Sony said, "The improvement in the results was partly due to the restructuring of its electronics business, especially in the components units. At the beginning of the new millennium, Sony faced increased competition from domestic and foreign players (Korean companies like Samsung and LG) in its electronics and entertainment businesses. The domestic rivals Matsushita and NEC were able to capture a substantial market share in the Internet-ready cell phones market. Analysts felt that the US based software giants like Microsoft & Sun Microsystems and the networking major Cisco Systems posed a serious threat to Sony's home entertainment business. |
Restructuring Sony
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