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| Words: 1274 | Submitted: 24-Jun-2011
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DescriptionSony announced another round of organizational restructuring in March 2001
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.
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.
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.
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.
On May 7, 1946, Masaru Ibuka (Ibuka) and Akio Morita (Morita)4 co-founded a company called Tokyo Tsushin Kogyo Kabushiki Kaisha (Tokyo Telecommunications Engineering Corporation) with an initial capital of ¥190,000 in the city of Nagoya, Japan.
They gave importance to product innovation and decided to offer innovative, high-quality products to their consumers. The founders introduced many new products like the magnetic tape recorder, the 'pocketable radio,' and more. By the 1960s, the company had established itself in Japan and changed its name to Sony Corporation. During the 1960s, the company focused ...
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