Nintendo had a significant amount of western second-parties until the GCN days. There was Silicon Knights, Rare, Factor 5 and Left Field Productions. DMA Design and LucasArts were part of the Nintendo Dream Team and Acclaim and Midway gave strong support it with a lot of exclusive titles.
This changed, however, when Iwata took the office and the situation got reverted. They got japanese support, but lost western.
Nintendo's "dream team" was at the time a "great idea", support the top developers to get the best western titles. However, as far as I remember, it totally backfired, while they did get some great support from some of those developers, they also left the whole rest of the third party support for Sony to sweep in and take. Those developers were great, but really, if you look at the current industry, new top dogs have risen, and they weren't a part of that dream team, they came out of nowhere, and Nintendo snubbed all of them. Nintendo was notorious for not supporting 3rd party developers, while they *did* support their "dream team" to a certain extent, everyone else was left out in the cold. Poor documentation, and poor tools provided, and a horrible lot check system infuriated 3rd parties.
When Iwata came in, he took his developer background and tried to reverse the wrongs that were done. If it wasn't for him, Nintendo would probably not exist today. Nintendo documentation is getting better, and they're providing tools that developers need, at least they can stand their ground against their competitors in that ground.
Abdandoning the hardware power was the primary reason why Nintendo has a huge bank, and isn't out of business. They also have the DS, which gives them huge profit, but again, it wasn't cutting edge power either. Nintendo's portable business was always where they consistantly made huge profits as they owned that market, even with higher spec'd competition was released (Gamegear, PSP, etc..). Iwata thought that Nintendo could do that with the console market too, focus on games and leave the arms race. They were successful with the Wii.Abandoning hardware power was one of the primary reason on why Wii life went downhill.
While I like the hardware arms race, and I dig pretty graphics, I also love the Nintendo franchises, and what nintendo does in the console marketplace. So if they need to bow out of the arms race to survive, so be it, I'll just need to be a 2 console owner. If Nintendo's gaming doesn't make money long term, then they go out of business, unless Sony and Microsoft they don't have other departments to pad their losses.