Sega is set to post large losses for 1999 following poor sales of its Dreamcast console in Japan.

It has nearly halved its domestic sales target for the Dreamcast console, from 1.1 million to 600,000 units.

The news comes as the battle for market share in the lucrative video games market hots up.

Sega had hoped that Dreamcast, which offers internet access, would establish a market presence before the launch of new products from its competitors later this year.

Sony officially launches Playstation2 on Saturday, while Nintendo is to launch the next version of Game Boy in September.

Sega expects to post a net loss of $412m in the year to March, more than double the expected loss.

Third year of losses

This is the third consecutive year of losses for Sega and the company had hoped that the launch of Dreamcast would help it get its foot back in the market.

"Sales of Dreamcast in the United States and Europe have maintained strength and are exceeding our plans," the company said.

Since launch of the Dreamcast, 4.4 million consoles have been shipped.

"Its ( Sega's) future course will depend on whether and how it can win over users with internet-based products," said Kazuko Fushimi, an analyst at ratings agency Japan Rating and Investment Agency.

Sony dominance

Another analyst added: "Sega will find it hard to expand its domestic market share, but it still has some room for expansion overseas."

Monday's profit warning heightens expectations that Sony will retain its leadership in the video games market.

Last year, Sony had a 67% world share, followed by Nintendo with 27% and Sega with 3%.

Its new product, Playstation2, has the capacity to play digital video discs (DVDs) and potentially tap the internet.