Seems to me HD development and ambition stretched their resources beyond what they were capable of producing, and focusing more on appealing to a western audience but not really understanding what we want

Probably most have to do with the size of the projects, so they can't turn as much finished games as before.

I've asked this question many times over the past 10 years - got too bloated, tried to back one horse (360) and turned backs on loyal PS fans, bloated development, etc. *sad*

Before they teamed up with Enix (after Square got in financial difficulties after investing way too much budget into the movie Final Fantasy: The Spirits Within), they didn't have games like Dragon Quest, Grandia and Valkyrie Profile, as these games came from Enix.

But well, seeing this list they once had still a lot of RPG-IPs. So what happened in the PS3/X360-era? The problem is increased production value. A 2D-sprite-based and turn-based RPG is relatively fast and cheap to produce. So even a few 10K sales are enough to turn a profit. Big real-time 3D-worlds are very expensive, productions take years and that with hundreds of people instead of ten. So you need WAAAAAYYY bigger sales to turn a profit. So they concentrated more and more on the big IPs. Besides the fact, that if you bind hundreds of people for years for one game, you haven't the resources to push out multiple IPs.

So it is basically the combination of 3D with HD (because SD in 3D is more expensive than 2D, but still a lot cheaper than HD). 2D on the other hand is even today pretty cheap. Look at the small company Kemco, which can with barely more than 100 employees push out around 10 games each year - turn-based 2D RPGs.

you're right some games are already from enix, maybe i should have write it bit better😉 and yes big games nowaydays means more work to do...but liked mentioned above, today are working more people on a project, but in the last few weeks they saw that they have now the possibility to speed up making hd games, let's see if it's true

My understanding is that a lot of Japanese developers hit the HD era the way Sonic hit 3D, even Nintendo stumbled with the Wii U about it. They have, unlike Sonic, generally unarguably have recovered in recent years.

As publisher, I don't really have a problem with Square-Enix, at all. They take risks at times, they bring some good gems here and there that wouldn't have been possible without their input in this area, and I'm generally satisfied with these.

As a developer, I guess the increased costs of development, plus S-E always seeking the cutting-edge approach to their flagship titles. Though if I'm being honest, I've liked Square-Enix' development input for the most part, sans some horrible games along the way (like FF Type-0).

Squaresoft and Enix became Square-Enix

After that... it went downhill pretty fast.

That game was made almost entirely by its story, characters, and atmosphere as far as I see it - and therefore SE's Yoko Taro. PG is a hired gun - a great one, but a hired gun nonetheless.

Basically Square went through a lot of changes that started at the end of the PS1 era and came to full fruition during the PS3 era.  These changes were

1.  Square merged with Enix.  Square lost a ton of money making "Final Fantasy: Spirits Within", so they had to merge in order to survive. 
2.  Several key members left during this time period including Sakaguchi (FF creator and main writer), Uematsu (main composer).
3.  Going to HD slowed down game development for everyone, but it seemed to have hit Japanese companies even harder than Western ones.

Square has never been the same since.