I don't know what happened but sometime well after the launch of the PS2, Sony's game hardware division went absolutely insane with some of the worst business decisions a big-name company could make. The initial price point of the PS3, getting rid of rumble for phoned-in motion controls, all the money they've pointlessly put into Home (it would've been just as effective to have it be a website), and most recently the PSP Go! and its ridiculous launch price... I don't know what they hell they're thinking, honestly.

Sony is incredibly capable of making good hardware. I just bought a PS3 and I really do think it's a wonderful system. They just make some seriously horrible business decisions, which I think largely are made due to hubris from the successes of the PS1 and PS2. If they want to survive as a hardware maker, though, they need to tone it down. Instead of toting the MOST FASTEST PROCESSOR EVER!!! they should go with an affordable architecture that's easy to develop for. Don't make things that consumers will pay for but never use (Home. Home. Home. HOME.).

I don't really want to see Sony exit the hardware realm, but if they can't reflect on the bad decisions they've made and try to continuously improve themselves then I could see it happening.

(but also remember: Sega had a lot more failures leading up to them leaving the market, and didn't have the potential funding from huge consumer electronics sales to keep them going when the Dreamcast fell short of sales expectations)