The Japanese company’s share of the portable music player market rose to 43 percent, surpassing Apple’s 42.1 percent and ending the iPod’s 241-week run as Japan’s top portable media player.

A noteworthy victory for the Japanese electronics giant, but one that says more about just how far the once great company has fallen than anything else. That it took Sony (SNE) this long to unseat Apple (AAPL) in its home market is astonishing–all the more so given the vast success of the Walkman and the mindshare it once commanded.

And one could argue that Sony hasn’t actually beaten Apple at all. BCN’s survey didn’t include the iPhone because it views that device as a phone. But obviously, it’s an iPod as well–BCN notes that the handset has clearly cannibalized iPod sales. Had BCN classified the iPhone as the media player that it is, Apple would almost certainly have maintained its lead over Sony in the Japanese market.

This morning the struggling handset maker tapped Nordberg, executive vice president of Ericsson, as its new president and CEO. He’ll replace Dick Komiyama, who has apparently decided to retire, though he is smack dab in the middle of implementing the restructuring program that was intended to reinvigorate Sony Ericsson.

“The Sony Ericsson transformation program I began over a year ago is more than half way completed, and I am pleased with what we have achieved so far,” Komiyama said in a statement. “I believe it is the right time for me to begin transferring the leadership of the company to a person who is able to complete the transformation program and lead Sony Ericsson through its next phase of development.”

The right time, indeed. Over the past few years, Sony Ericsson has been overtaken in the high-end handset market by Research in Motion (RIMM), Apple (AAPL) and Samsung and beaten into submission in the low-end market by Nokia (NOK). Among the top five cellphone vendors, Sony Ericsson saw the steepest drop in sales from the first quarter, down 40 percent year-over-year, and continued losses at the joint venture have prompted some to speculate that it could be broken up.

That’s clearly not the case at the moment, though it could be if Nordberg doesn’t manage to speed up that transformation program. Said Nordberg: “Sony Ericsson has taken leadership in the music phones and the camera phones with the Cybershot and the Walkman, but there are some weaknesses in the smartphone segment and we need to restore that.”

Sony’s net loss in the quarter was 37.1 billion yen ($390 million), a brutal change from the 35 billion yen profit in the year-ago period. Still, it was smaller than the 109.6 billion yen loss analysts polled by Thomson Reuters had been expecting. That said, all three of Sony’s core electronics divisions registered losses for the quarter.

Not a good sign. Because while the company’s smaller-than-expected loss proves its cost-cutting measures have been effective, it also shows that Sony (SNE) must do more than just slash jobs and suppliers if it ever hopes to regain its position in the market. For while cost-cutting might improve Sony’s bottom line, it’s not going to make the company competitive against Samsung, Nintendo and Apple (AAPL), who’ve usurped its position in TVs, gaming consoles and media players, respectively. What Sony needs most is not more cost-cutting; it’s a new gotta-have-it product.

Seriously. It’s been, what, 30 years since the debut of the Walkman?

What has become of the Sony known for its technology? I hope it will solve its problems soon to quickly recover its brand image reputed for technological prowess.”

– Japanese Economy, Trade and Industry Minister and former Sony employee Akira Amari, October 2006

Now that Sony’s old guard has taken what was once a strong electronics and gaming brand and run it into the ground, the company’s new guard is circling back to resurrect it. This morning the company announced a management overhaul that will see CEO Howard Stringer succeed Ryoji Chubachi as president and assume responsibility for Sony’s key electronics division. It will also see the creation of two new business groups: The first, Networked Products & Services Group, will consolidate Sony Computer Entertainment, the company’s Vaio division and its mobile and Walkman unit. The second, the New Consumer Products Group, will include Sony’s TV, digital imaging, home audio and video businesses. Spanning the two groups will be a cross-divisional software and technology unit charged with ensuring compatibility among their products.

Sony (SNE) says its new structure is aimed at giving the company the agility it has so sorely lacked for so long and to “speed up the transformation of Sony that was started four years ago,” which has all but stalled, if the company’s recent financial performance is any indication. “Have I broken down all the silo walls? No,” Stringer told the New York Times. “Are they very strong and very thick? Yes. But we’ve broken down a lot of them. Our goal is to continue to do that. We have two distinct challenges facing us. The first is the global slowdown, which forces us to make significant adjustments. The second challenge is the evolution of our competitive environment. New competitors springing out everywhere.”

After an overlong and unsuccessful campaign to spread adoption of ATRAC, Sony is scrapping the proprietary audio format. This morning the company said it would close its CONNECT digital music store and forthcoming Walkman digital media players will support formats that consumers actually use like Windows Media Audio, along with MP3 and AAC (or advanced audio coding). “Customers don’t want to be locked into one service, consumers are demanding choice in music,” said Jeffrey Van Ede, Sony Europe audio marketing VP. “There has been a fundamental shift in legal downloading, and that is toward DRM-free music.”

And what of those few Sony customers who actually own ATRAC music? For them the company’s offering an MP3 Conversion Tool and some advice that CONNECT users have been likely following for some time now: “For your purchased music from CONNECT, you can burn it to audio CD and rerip it into MP3 format to continue enjoying it for personal use.”