A recent announcement by Moody’s Investors Service that it has placed Sony’s credit rating on review for a possible downgrade –a move that would relegate the Japanese technology and electronic giant to junk status and has caused Sony’s share price to plunge–was of little surprise to Alison Shimada, co-portfolio manager of Wells Fargo’s Advantage Emerging Markets Equity Income Fund and the Wells Fargo Advantage Asia Pac Fund.

Much like many investors, Shimada has been bearish on Sony, a company that was once uncontested poster child for Japan’s superior technological capabilities. “I have been following Japan for 20 years now and when it comes to Sony, there are so many issues that one just doesn’t know where to start,” she said.

Sony is forecasting a 40% drop in earnings for this year, but the company has been in trouble for a long time and its fall from the top has been well documented. Besides the its failure to keep pace with the rapid strides in technological innovation, particularly the Internet, Sony also lacks strong leadership, Shimada said, the kind of leadership that would be able to unify its disparate business lines and bring about some much-needed structure.

“Sony’s basic strategy has been to price higher than everyone else and to charge a premium, but it lacks innovation in its products and you can’t get a premium unless you have innovation,” Shimada said. “The obvious comparison is a company like Panasonic, which is innovative and also gets rid of things that don’t make money. This is good and the moment a company starts doing things like that, the market will follow and there will be momentum in the stock.”

For many investors in Japan’s tech sector, Sony is of little or no interest at all now and that will likely be the case unless it makes some pretty drastic changes to its business.

“Sony has an unfortunate technology and electronics division, which is a legacy business, but technology has evolved and the lead players have changed over time,” said Drew Edwards, portfolio manager at Advisory Research Investment Management, who has been investing in Japan for over 20 years. “Times change but unfortunately, Sony is hanging onto that business far longer than it should have, although it’s been given a temporary lifeline with the weakening of the Japanese yen.”

But though the changing times may mean that a company such as Sony, which shook up the world with products like the Walkman and the Trintron television, is no longer a leader in the tech space, Edwards believes that’s partly to do with the fact that Japan has turned to a new page in its technological history. Today, some of the best Japanese companies are those kinds of tech companies whose products feed into the global supply chain in different ways, Edwards said.    “Japan excels in this space and there are lots of great companies that also trade at phenomenal value,” he said.

Companies such Micronics, for example, present a great investment opportunity for Advisory Research. The company makes the machinery and tools needed to manufacture the tiny components found in products like the iPhone.

“Japan has 100% market share in this industry. Japanese companies just dominate the space,” Edwards said.

When they think of the Japanese tech sector, most investors still tend to focus on the more high profile and visible companies such as Sony, said Hyung Kim, an international equity research analyst at Advisory Research, and they make the comparison between Sony and South Korea’s Samsung, which is clearly the market leader now.

“But if you look in more detail, there are so many Japanese companies that make components that compete against Samsung.  Ibiden, for example, makes components that are needed for semiconductors and has the biggest market share in that particular business, even supplying to Apple and also to Samsung itself, as well as competing against Samco, a Samsung affiliate, he said.

Sony’s CEO, Kazuo Hirai, has said that the company will not give up and it will do what’s needed to stay in the game and even try to get back to the top. But according to Shimada, Japanese tech companies such as Sony have to do a few things to remain relevant globally, not least produce at lower costs, which many have already started to do by taking production offshore.

And although pricing their products appropriately is also going to play a large part in determining the future of many companies, it’s clear that innovation is also going to be key going forward.