Why Is SONY In Troubles

I like the way Al Ries puts it: Hang too much on a star and it will fall from the sky. Clear. Simple. And true too. SONY is experiencing serious profit troubles as a result of that. In fact, if you did a survey, you would probably find that Sony is the world’s most admired electronics brand. Way ahead of whoever might be in second place. However, like most Japanese companies, SONY is heavily line extended. Sony puts its brand name on television sets, videocassette recorders, digital cameras, personal computers, cellphones, semiconductors, camcorders, DVD players, MP3 players, stereos, headphones, broadcast video equipment, computer screens, computer hardware, batteries and bunch of other products.

Again, building a brand and building a profitable brand are two different things. Does SONY make any money? The sad fact is NO. Net profits after taxes of SONY Corporation are tiny. In the last ten years, SCorporation had revenues of $519.2 billion. But net profits after taxes were only $4.0 billion. That’s 8/10th of one percent of sales. It’s hard paying off your bank loans, not to mention paying dividends to investors, with that kind of return.

Yet Sony’s most profitable product is the PlayStation video game, a brand which makes only marginal use of the SONY name.

Here are some interesting business insights I´ve found on the Internet:

Compare SONY with Dell Computer. Sony makes personal computers and a lot of other products. Dell just makes personal computers (until recently when they added printers.) In the last ten years, Dell Computer had sales of $140.3 billion and net profits after taxes of $8.5 billion, or a net profit margin after taxes of 6.1 percent.

That’s not fair, you might be thinking. To compare with Sony, you picked a company (Dell) that is exceptionally profitable.

Actually that’s not true. Dell is in a highly competitive business where profit margins are thin. (IBM has never made money in the personal computer business and Hewlett-Packard’s PC business is barely profitable.) As a result, Dell’s 6.1 percent profit margin is not spectacular.

The New York Times follow-up article here:
Falling Prices Bring A Deeper Loss At Sony