I don't think Nintendo will panic because of what their rivals are doing: they've stepped away from tackling the games business the way other format holders do. Nintendo will have been panicking and soul searching because of their own mistakes, which are almost entirely responsible for the situation they find themselves in. There's been a complete failure to read the market, a failure to anticipate the extent to which smart devices have altered the landscape, pursued a half-house home console market strategy (alternate console design while chasing third party parity) that sacrifices the strengths of the Wii without gaining the strengths of the PS/Xbox brands, over-priced their hardware from day one, not done enough to provide key features from launch, undersold and underdeveloped network services like Virtual Console, and not done enough to ensure their first party release schedule makes sense commercially. Niche products like Wonderful 101, Pikmin 3, Game & Wario didn't need to be ready in the first year of Wii U's life: Kart, Smash, 3D Mario and Zelda need to be there, especially in the absence of new ideas like Wii Sports.
Sony have got a lot right for PS4, but Nintendo got even more wrong with their transition from Wii and DS to Wii U and 3DS. It's their own mistakes Nintendo should panic about, and there are indications that Nintendo have taken that on board. Unified R&D, unified OS across hardware, the games platform becoming a digital network as opposed to individual hardware, incorporating Wii U architecture into their next generation: all steps designed to ease software releases and avoid the damaging droughts of the past, while turning their home console and portable console businesses into a unified ecosystem, and not running them as separate businesses. Greater network integration and digital services, so that consumers buy into an ecosystem, creating greater incentive to buy both home and portable offerings from Nintendo across generations: an account based, and not hardware based, relationship, to retain customers. Discounts and flexible pricing for consumers that purchase large amounts of software, encouraging strong tie ratios. Utilising smart devices and merchandising to reach customers who've never used Nintendo hardware, or stopped using it, so these consumers become or remain familiar with Nintendo's products: a far greater licensing out of IP for promotion than Nintendo have bothered with in the past. More flexible pricing across developed and emerging console markets, allowing Nintendo to reach consumers in India, Brazil and China traditionally priced out of buying Nintendo hardware. Finally, establishing the new "Quality of Life" business, to run alongside the more unified and integrated gaming business, which will provide Nintendo with a separate revenue stream, and in the long-run, may drive consumers onto their gaming platform.
That's a long-term reaction to mistakes made over the last few years. Nintendo have obviously already panicked, sat down, thought hard, and come up with a long-term plan. In the near-term, Wii U is Nintendo's top priority. Offering software that provides single player experiences that fully utilise and justify the gamepad, providing games that utilise NFC, to work more closely on collaborations with third parties to revive older Nintendo games and IP, better, clearer marketing and improved digital services, these are all Nintendo's plan for Wii U. That's not going to turn it into a market-leader, but the better proposition Wii U is, the more likely they'll retain loyal customers going forward into their new direction.
Nintendo have panicked, changed direction and their plan going forward. That won't save Wii U, and it wasn't done in response to PS4, but it may be what makes Nintendo much more competitive in the future. Nintendo should be, and obviously will be, concerned that Wii U sales are dipping again, but they've readjusted expectations in line with reality. They need to see this out, make Wii U as good as it can be, and throw everything behind their new direction.