When current Sony Corp. (NYSE: SNE) CEO Kazuo “Kaz” Hirai took over as head of the huge Japanese consumer electronics company, he promised to turn the company around. It had been ruined by his predecessor Sir Howard Stringer, who missed every opportunity to make Sony what is once was — the Apple Inc. (NASDAQ: AAPL) of the 1980s and 1990s. Hirai either took the job too late to matter, or his efforts have failed. The latest evidence came as Moody’s cut Sony’s rating to junk.

The ratings firm announced:

Moody’s Japan K.K. has downgraded the Issuer Rating and the long-term senior unsecured bond rating of Sony Corporation to Ba1 from Baa3. The ratings outlook is stable.

And added:

Of primary concern are the challenges facing the company’s TV and PC businesses, both of which face intense global competition, rapid changes in technology, and product obsolescence.

Sony’s profitability is likely to remain weak and volatile, as we expect the majority of its core consumer electronics businesses — such as TVs, mobile, digital cameras and personal computers — to continue to face significant downward earnings pressure. The primary reason is intense competition and the shrinkage in demand, the result in turn of cannibalization caused by the rapid penetration of smartphones.

To improve profitability, Sony has implemented extensive restructuring measures that include — among others — the reduction of fixed costs for its TV business, and the consolidation of its manufacturing plants.

These efforts have helped reduce losses in its Home Entertainment & Sound and Mobile Products & Communications segments, but Moody’s remains concerned that the benefits are only slowly emerging and that these two large segments seem unlikely to soon regain the robust profit levels seen historically.

Leadership in the current consumer electronics industry was Sony’s to lose, and it lost it. The company that created the Walkman and PlayStation almost completely missed the rise of smartphones and tablets. Sony was flanked by the larger Samsung, as well as Apple, which was much smaller than Sony when it released the iPhone in 2007.

Some of what happened to Sony has been blamed on its insular Japanese engineering culture. If this is true, perhaps Sony never had a chance to be a leader in the digital age. However, Stringer’s inability to carry the company into the 21st century stands as one of the great management breakdowns in the tech industry in the last half century. Sony’s demise is a cautionary tale. First place does not mean anything in a world where consumer product preferences can change every year.

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