What is a Business Segment?
A business segment is a part of a company that can be identified by the products it provides or by the services or geographical locations it operates in. In other words, it a single part of a business that can be distinctly separated from the company as a whole based on its customers, products, or market places.
Management often divide companies into business segments to help gauge what areas of the company are performing well and what areas need improvement. During times of slow economic growth, managements also separate company performance into segments to make decisions about what discontinuing operations in certain markets or cutting departments altogether.
Business segment is a division or subset of a business’ operations, especially in large corporations. For a division to be considered a segment, it must directly earn revenue for the company. For example, a heavily diversified corporation may have one segment dedicated to telecommunications, another to manufacturing, and a third to energy. It is also known simply as a segment. Internally, each segment’s expenses and revenues are accounted for separately.
Example of a Segment
Let’s say XYZ Corporation makes widget presses. After years of sticking to this core product output, it decides that it can very easily use the widget presses to manufacture the actual widgets, as well. If the company successfully produces widgets and gets them on store shelves for retail consumption, the widget division may be viewed as its own business segment because it generates its own revenue and incurs its own expenses.
Another tell-tale sign that a company has siloed a function as its own segment can be seen when its sales figures do not directly impact the profitability of the business’s core operations. In this case, if widget sales fizzle, but the sales of the widget presses climb, the widget arm can justifiably be deemed to be an autonomous segment.
Keep in mind that not every component of a company constitutes a segment. For example, XYZ Corp.’s marketing division would not be considered a segment because it does not perform operations that directly earn revenue.
Example of Business Segments: Apple
Apple Inc (AAPL) is an American multinational technology company that designs, develops, and sells mobile communication and media devices, personal computers, computer software, and online services. The company was founded on April 1, 1976, and is currently headquartered in Cupertino, California. The company operates its business segments on a geographical basis:
- Americas segment includes North and South America.
- Europe segment includes European countries, the Middle East, and Africa.
- Japan segment only involves Japan.
- Greater China segment includes China, Hong Kong, and Taiwan.
- Rest of Asia Pacific segment includes Australia and Asian countries excluded from the other business segments.
- Retail segment operates Apple retail stores in 13 countries.
Each segment provides similar hardware products and software products, and similar services.