Wii U is Nintendo's attempt really to bridge the gap between the Wii and the DS lines, because I think Nintendo liked that the DS, while still having successful casual games like Nintendogs, could still do well with more core third party product, whereas Wii Sports seemed to overshadow everything else on the Wii other than Mario Kart and Wii Fit.
If they could get every DS owner in Japan to also buy a Wii U to play at home (using the quasi-portable nature of it) they probably thought they would rake in the $$$$. That and they'd still keep the Wii audience because they'd stick closely to the Wii-branding/design, allow for Wiimotes to still be used, keep lots of mini-game comps coming, etc.
That was their idea, they just didn't look to their left where a giant Apple branded freight train was coming to run them over.
And to be fair, Nintendo's not the only one that got caught in that wrecking path. Many other once-proud companies like Blackberry, Nokia, even the mighty Microsoft themselves got hit hard.
In a world where there is no Angry Birds, Plants Vs. Zombies, for free/$1, in a world where everyone and their grandma doesn't have an iPhone/iPad/Android device, maybe Nintendo Land is a big hit. It's not like Mario & Sonic was anything special but that sold 7+ million, today it can't even get to 500k.
