Sony's loss was 98.9 billion yen (US$1.03 billion) for its fiscal year just ended, and it expects a net loss of 120 billion yen (US$1.25 billion) for its fiscal year ending in March 2010. Despite the dismal report, Sony beat analyst's expectations, thanks to a one-time gain from Japanese tax-law changes.

Sony blamed the economic downturn and a strong yen for its poor earnings and plans to close three factories in Japan to slash production costs. But analysts suggested the problem might be something more.

"Like Apple products, Sony products often carry a bit of a cache and are considered premium products," said Michael Gartenberg, a vice president at Interpret. "The key difference is that Apple has managed to portray itself as a premium product that carries value. Sony hasn't gone to the trouble to establish the value behind the premium offerings."

Sony Fails to Respond

Drilling down into the report, Sony's sales for fiscal 2009 fell 12.9 percent from the year-ago period to 7.73 trillion yen (US$80.8 billion). Sony saw the greatest losses in the fourth quarter, where sales plummeted 22 percent to 1.52 trillion yen (US$15.9 billion).

Sony has seen its market share eroded by rival consumer electronics and video-game console makers, including Apple and Nintendo. Once dominant with the Walkman brand, Sony has given up its portable music player market lead to Apple. For video-game consoles, Nintendo has regained its market share from Sony, with the Wii outselling the PlayStation 3 by a wide margin.

"The Wii has been a problem for the PS3 since almost day one, and Sony has not been able to effectively respond," Gartenberg said. "Most recently, Apple has been pushing the iPod touch as a portable game player, challenging the PSP. And of course Sony doesn't have a direct answer to the iPhone or the iPod that's been an effective."

Beyond Music and Games

Beyond the iPod and the Wii, Sony is also losing money on televisions, and it's seeing increasing competition from low-cost digital camcorder makers.

Gartenberg noted interesting product introductions in the past year from Sony, such as the 11-inch OLED TV set for $2,300. The company also has the Vaio P series lifestyle PC and the Sony Reader for electronic books. But with competition from netbooks and Amazon's Kindle reader, Sony isn't seeing the traction it hoped for.

"Sony has the products and they've got the technology, but they have not been able to capture the hearts and minds of consumers in some of these categories the way their competitors have," Gartenberg said. "If you go to an Apple store, the whole ecosystem is laid out in front of you. If you go to a Sony store, you almost feel disconnected. You don't get a sense of how these products work together in a holistic way. Sony needs to work to portray that holistic view."