SONY corporation is a leading manufacturer of consumer electronics, gaming products, music, and movies. The company has a highly diversified product portfolio including a large range of products catering to diverse customer segments’ needs. The company has introduced many innovative products and technologies during its history; some of them the world’s first. Over time, the business model and product range of SONY corporation has changed a lot.
In fiscal 2019, the company realigned its business model to respond to the fast-changing market dynamics. Some of the product segments that used to be leading revenue sources for the company, like its Televisions, digital cameras, smartphones, and music systems, are no more as profitable as some years ago. However, the company has introduced new products also that have helped it regain strong growth momentum.
SONY’s sales and profits declined in fiscal 2019 compared to the previous fiscal mainly due to the declining demand of several of its products and, to some extent, due to the changing market dynamics and the pandemic’s effects.
SONY’s growth in various industry sectors and market regions now mainly depends on its ability to innovate. The company is facing heavy competition from several Chinese, South Korean, and American players. However, the biggest challenge before the company is to maintain its growth momentum in these critical times.
While growing competition has made differentiation difficult for even the leading players in the consumer electronics and smartphone industries, the biggest drivers of growth for the company in the near future might be its Pictures, music, and imaging business segments.
In this BCG matrix, we will take a detailed look at SONY corporation’s portfolio to determine its profitability.
What is the BCG matrix?
The BCG matrix or the Boston Consulting group Growth Share matrix is a planning tool used internally by management to decide which products are the most profitable and which ones to invest in as well as which ones to sell or divest. The matrix includes a graphical representation of the company’s products and product categories in the form of a four-square matrix.
The Boston Consulting Group introduced the BCG matrix first in 1970. The matrix has four squares or categories: Stars, Cash Cows, Question Marks, and Dogs. These four categories take the form of four quadrants in the BCG matrix. The Y-axis represents the market growth rate in this matrix, whereas the X-axis represents the market share. The four categories which are a part of this matrix have their own set of unique characteristics.
Stars are products in high growth markets with a large market share. These are the products that the company can further invest in to cement its position in the industry and markets. They are located in the upper left quadrant of the matrix. While they generate huge amounts of income for the company, they also consume cash in huge volumes. Stars can eventually become cash cows if they can remain market leaders and when the market’s growth rate falls.
Cash cows are the products in low growth markets but where the company holds a significant market share. A company must milk its cash cows for profits for as long as possible. Generally, cash cows are market leaders in mature markets. The profits these products generate are typically higher than the market growth rate and are good for a company from the cash flow perspective. It is why companies need to take advantage of their cash cows for as long as possible.
Moreover, the value of cash cows is highly predictable since their cash flow patterns are highly predictable. Companies must milk low growth high share cash cows for cash to reinvest in the high-growth high-market share stars holding higher future potential. The cash cows are found in the lower-left quadrant of the BCG matrix.
Question marks are like opportunities with an unclear or questionable future. These products are in high growth markets but without a large market share. They are in the upper right quadrant of the BCG matrix. These products can grow fast, but they also consume the company’s resources in huge amounts. Companies need to analyze these products regularly and closely to check if they are worth maintaining. If the company does not see much potential in them after watching regularly, it must not keep them.
Dogs are products in low growth markets and with low market share. These products may sometimes prove to be cash traps that keep consuming the company’s resources, including cash and other resources. Because of their low market share and little to no growth, such products hardly generate cash for the company. Such products need to be sold out or liquidated, or repositioned. However, they can also keep the company’s funds tied for long periods of time if they are not divested. Companies should watch dogs closely to see if they are only consuming resources and divest them instead of wasting more time and resources.
SONY Corporation BCG Matrix:
SONY has a highly diverse product portfolio. While some of them have remained significant sources of profits for long periods, like its Play Stations and Televisions, the time and consumer dynamics are changing. As such, the company may need to liquidate or divest some of its least profitable products as it did with SONY VAIO laptops. It is the right time to analyze the company’s portfolio to check out which of its products may need repositioning and which ones are worth keeping.
The competition against SONY has kept growing fiercer, and its growth now depends on the innovation and management of its portfolio. SONY realigned its business in fiscal 2019 since the company experienced a decline in sales across key product categories. Some of the most profitable products like smartphones and Televisions experienced a drop in sales in recent years caused mainly by the growth in competition and the pandemic. However, its new product segments have helped it build growth momentum. In this matrix, we will see which of its products have succumbed to the growing competition and become question marks or dogs from Cash cows and Stars and which ones have risen from question marks to become cash cows or stars.
The imaging and sensing solutions of SONY corporation are the leading stars in its product portfolio. Apart from being in a high growth market, the company is also a market leader in this sector and owns a large market share. The imaging and sensing solutions segment of the company experienced stellar growth in fiscal 2019. It was also why the company could successfully retain a lot of its growth momentum and profitability. In contrast, many other profitable product segments of the company experienced a significant decline.
Other major stars in the product portfolio of the company are SONY’s movies and music businesses. While these segments’ growth rate stalled during the pandemic, they will again start growing once the impact of the pandemic is brought under control. Despite the pandemic, these two segments experienced significant growth during fiscal 2019 (ended March 31, 2020). So, the growth rate of these two segments can be superior after the pandemic, and the company also has a significant market share in both these sectors. The market share of SONY/Columbia pictures in the North American market, one of the leading markets for movies globally, was 22.2% in 2020 compared to 11.7% in 2019.
SONY’s biggest Cash Cow is its PS4 hardware and gaming software. While several of its consumer electronics products were also its cash cows, their future seems to be bleak due to the heavy competition and Chinese players’ entry. The Chinese brands sell competing products at lower prices globally. In fiscal 2019, the sales of PS4 hardware also dropped significantly, but it remained among the company’s largest sources of revenue. The gaming segment of the company remained its second-largest source of revenue.
Apart from that, the television business of the company is also one of its cash cows. While the company’s television business experienced a decline in profitability in fiscal 2019, it remained one of the leading revenue sources for the brand. Some years ago, SONY had more cash cows, but now it has fewer of them since its consumer electronics products like cameras and audio systems steadily met declining sales.
QUESTION MARKS :
Several of SONY’s cash cows have become question marks in recent years since their sales have kept dropping steadily due to the growing competition and heavy price pressure. As a result, SONY’s margins from these products have also kept shrinking. Its sales of audio and video systems and digital cameras have kept dropping steadily, and their future has grown bleaker with increasing competition in the industry.
SONY makes premium products and is facing heavy price competition from the Chinese brands especially. As a result, its share in these markets has kept dropping. SONY can either increase its market share in these segments through higher spending on research & development and marketing or will have to liquidate some of these businesses in the future.
SONY’s new automobile project Vision-S is also a question mark. Until SONY starts seeing some initial success in this area, it would remain not easy to say if the company will be able to turn it into a Star or cash cow.
SONY’s Xperia smartphones are experiencing higher competition globally from many brands, including the Chinese, South Korean, and American brands. As a result, their sales have kept falling year on year. SONY’s revenue and profits from its smartphones have also reduced significantly.
The main reason behind the declining sales of the Xperia smartphones is the increasing competition, but apart from that, these products’ premium prices are also a significant reason. SONY has completely lost market share in the smartphone industry. Unless the company can increase its market share through competitive pricing, research, and development or marketing, it will need to divest its smartphone business since it is also consuming its resources.
A few last words:
Overall, SONY’s business is in quite a good shape except for a few products that seem to be losing their sheen in the face of increased competition. The pandemic also affected the sales of SONY’s PlayStation hardware and televisions. While SONY’s television business is also experiencing reduced demand, it is still in a lot better shape than SONY’s smartphone business. If SONY cannot resurrect its smartphone business that has been losing its appeal among the consumers who can buy Chinese smartphones with similar features at much lower prices, it will be forced to divest its smartphone business.
SONY’s imaging and sensing solutions business is its STAR. The company holds the lion’s share in this industry. Its future in this industry also looks great. The demand for SONY’s imaging and sensing solutions from other smartphone makers strengthened in fiscal 2019. The Play Station 4 business of SONY, despite experiencing slower demand in fiscal 2019, is still in good shape, and PS4 hardware is the company’s cash cow apart from the SONY televisions.
Due to the rise of digital entertainment, the demand for televisions has been shrinking. However, demand has not totally died out because people still like to watch their favorite web series and programs on their television sets. So the company can still milk its television business. However, SONY televisions’ demand will continue to be affected as Chinese and South Korean and the Japanese rivals of SONY continue to release innovative models at lower prices. SONY’s automobile endeavor’s success is not certain yet, but the picture will become clear soon, and if it is a success, SONY might have another Star or Cash Cow in its portfolio.
Originally published at https://notesmatic.com on February 1, 2021.