Those profits came from Nintendo selling tens of millions of handheld HW, which led to tens of millions of SW sold from that HW. It definitely didn't come from underperforming home consoles.
And yes, digital subs and sales are important, but it is the combination of both that and physical retail that makes one very successful. And more boxes sold means more profit from HW and higher potential for sales of physical and digital goods.
Except that nobody has ever made an real money on sales of consoles. They're a loss leader. They're used to get you in the "store", so you'll buy the other merchandise (software, subscriptions, and peripherals) where they make real money.
But, your other points are right. Selling consoles is an important part of the overall recipe for success, as the industry works now. But, with MS selling subscriptions to PC users, and games to users of nearly every platform, the recipe is changing. And, in that context, Phil's statements make sense.