The Sand Shinobi had lost—there was no doubt about it—because the Fourth Kazekage had been defeated by Orochimaru.
A village's Kage was generally its strongest ninja, or at the very least, one of its strongest.
In the eyes of ninja from the major villages, a Village Kage and a Kage-level powerhouse were two different concepts. The defeat of the latter could greatly damage morale, but the defeat of the former would cause morale to collapse outright!
If the one who had defeated the Fourth Kazekage had been the Third Hokage, the blow to the Sand Shinobi might not have been so severe. After all, the Third Hokage was renowned far and wide, while the Fourth Kazekage had only recently assumed his position. It was perfectly normal for him to lose.
Yet the one who had defeated the Fourth Kazekage was Orochimaru. Although Orochimaru was one of the Sannin, he was not Konoha's publicly acknowledged strongest ninja. The very title of Sannin indicated that there were two other ninja in Konoha on his level.
If Sunagakure's strongest ninja, the Fourth Kazekage, could not even defeat one of the Sannin, how could their village possibly defeat Konoha?
With their morale completely shattered, even though Chiyo had used poison gas at the start to catch many Konoha Ninja off guard and thoroughly disrupt the battlefield, it had only made Sunagakure's defeat look slightly less ugly.
At the same time, Uchiha Feiyu learned why Pakura had not followed Chiyo. It was said that after the Fourth Kazekage had been beaten unconscious by Orochimaru, Pakura had stepped forward and barely managed to hold Orochimaru back, allowing the Sand Shinobi to complete their retreat.
Orochimaru had also expended a great deal of Chakra in his battle against the Fourth Kazekage and was not in particularly good