Not entirely true. In fact, Square was working with Sony before there was any idea of FFVII. Secret of Mana was supposed to come out for the SNES-CD addon, but due to reason known, the game had to be cut significantly to go on a regular SNES cartridge. There are sources that even say that this very experience is one of the if not the main reason why Square went along with Sony, after they broke off and made their own competing console. Square continued with Nintendo's SNES for a while because.. well.. it was the best selling console in Japan by far.
I've heard a smilar story but about Final Fantasy VI, when Square intended a 32MB cartridge for the game but Nintendo only gave them 24MB, so Square had to cut content on every corner. That's why some side characters seem to be out of place like that pickpocketing wolf in Narshe or the swordsman Siegfried, also Uematsu was forced to cut some original songs entirely, some graphics and designs had to be scrapped and some story events were rewritten. Sakaguchi and the top management at Square were very unhappy because apparently this decision came very late in the development process and so this ultimately led to deep disagreement between the two companies which once used to be close partners.
Gameplay > Graphics
Substance > Style
Art Direction > Realism