I doubt this includes demand for puny little 32GB NAND flash memory, smartphones are moving past that.
That's typically the smallest and cheapest size. iPhones use that size and it's the most popular iPhone people own due to costs. Besides, it's a fight over supply from the assembly lines. There are only so many assembly lines and apple will get priority over Nintendo for use of those lines because their purchase orders are severely larger.
Phones and tablets don't have games that can take up more than the 26 GB of internal memory available in the Switch. The fact many phones only have 32GB of flash memory is a shitty excuse for the lack of built in flash memory in the Switch.
Do you want a $800 Switch? Look at the pricing of phones when they get 64, 120, 240 gigs of flash memory. Go ahead, I'll give you time to google it.
It's expensive as all heck. On a system that doesn't require that games are installed, it doesn't make sense to include really big, yet really expensive, flash memory. It would drive the price of the Switch out of a range the market can bare. People already complain over $299. You think $599 or higher would sit better just to have a ton of internal storage?
Nintendo created the best of the bother worlds. They used a small amount of internal memory to keep the costs under control at the market and is something that would affect most consumers who go physical only. For those that want to go digital, they gave you an easy way to upgrade your storage with micro sd cards, something many opt to do on android devices getting as much storage as they want. Plus, Nintendo allows multiple cards used on each system. You can buy a Hanful of 120 gig cards on BFsales and be set.
It's the best of both worlds for everyone. If they released a 240 gig flash version.... people wouldn't be able to afford a Switch.