It's not about accepting a "downgrade". There are limitations to what you can accomplish with a ~15W device, especially if you want to make it affordable. The Deck isn't competition. it's sold less than 5M units worldwide and that's a generous estimation. An Xbox portable wouldn't be competition. I'd almost write Sony off as well but they did have success with the PSP (launched in 2005) and the new PSP (Portal) seems to have steady demand.
The last successful ""traditional" cutting edge console" they had was the SNES (launched in 1990). I'd argue chasing power is foolish as they'd find themselves in the same pitfalls as their competition. I'd further argue the further they fall behind the power curve, the better as it will help them keep development costs in check. I don't think a two pronged approach is going to happen either as I don't think they want to confuse the market. They certainly don't want a repeat of the Wii-U.
I do think the Switch successor is going to have a hard time keeping pace with the Switch but that's mostly due to the benefits the Switch saw during a global pandemic.
Agreed the deck hasn't done a ton so far but all with almost no advertising, no retail presence, and an initial product that was so-so. (Oled is much better)
An xbox portable wouldn't sell 50 million bit priced right could sell 25 million. If Sony joined in they could sell 30-40 million. A revised steam deck could sell another 5- 10 million. All of these would take from nintendos pie if they only have switch 2.
The gamecube would prob be Nintendo's last cutting edge unit, or at least comparative with that gen. Wii u was a greedy grab at a gimmick that backfired, it could have had proper hardware in it.
The reason the switch sold so well wasn't the pandemic, (sure it helped) but it was already doing amazingly well. The reason it sold so well is it was the only portable sold by a gaming company at a decent price, and was supported by aaa titles. The hybrid nature was a boost as well, helped justify the purchase.
But all future handhelds will be hybrid, so that will be lost as an exclusive.
Guess we will see if anyone is interested in switch 2 besides us diehards here. I think a ton of switch buyers who are casual won't care if it's a modest upgrade only, and Nintendo is at more risk than you might think. History shows us previous gen is definately no guarantee of anything.