A low cost console wouldn't be the worst play for Nintendo.
Releasing a console that's just PS4/XB1 level in power or slightly better will flop the same way the Wii U has because it will be several years too late.
People are not paying another $300 so they can play the same games on PS4/X1 with a handful of Nintendo games too.
If they want to compete head-on they must make a 3 TFLOP console *minimum* I think. To see a real difference on screen will be difficult if the gap isn't large enough.
Which I don't think Nintendo has any interest in making a console that expensive and then making games for it which would cost a small fortune.
Whereas a low cost console ... they can use mobile parts and still actually get some good kick for their money. Like I said a chip like the GT7900 from PowerVR clocks in at an impressive 800 GFLOPS (this would be a nice sized upgrade over the Wii U), is cheap, and is based on mobile tech, so it would scale easily into a handheld as well, allowing Nintendo to share their games very easily on both platforms.
To be honest if Nintendo had a processor like that they could even just throw 2-3 in a box and it would match/exceed the XB1/PS4 for a higher spec console that likely has a power consumption rate lower or equal to the current Wii U. Mobile tech is advancing at an amazing rate.
