Yep, in the past, Nintendo needed to refocus it's Software efforts towards its next system and had to do this while balancing Handheld and Consoles software lines & hardware launches. Switch has resolved this issue until a successor is released since it has combined Nintendo's software output.
With the Switch, past trends are really out of the window. The Switch will not perform like prior Nintendo systems in its price bracket, so any illusions about falling off a cliff or slowing down are a bit of wishful thinking from people. Next year will likely see hardware sales that rival this year's, and the Switch is yet to have an official price cut, Switch Lite being a somewhat of a price/feature cut(similar but more successful than the 2DS).
Some people underestimate it because they are only interested in Nintendo failing.
Agreed. In the past, in order for a device to do well in its final year or two, Nintendo would essentially have to sacrifice the first year or two of the next system by keeping the current one going with software. 3DS had a terrible launch lineup in its first 6 months on the market, for example, because Nintendo probably focused on making too many first party DS games releasing in its final couple years. I suspect with this unified approach that they will still be able to pump out a decent amount of games for Switch 1 during its last 1/3 life, while at the same time preparing plenty of launch software for Switch 2.
But as I've said in other threads, something that is working against Nintendo can only be understand by looking at their history. Development teams in other companies are constantly pushing hardware, and that hardware is constantly upgrading. PS1, PS2, PS3, PS4, and PS5 all have huge power gaps (even if graphical improvements haven't made as huge of a jump as they used to. Same with the xbox consoles. Developers working on those devices have been used to these jumps for decades now, every 6 years or so. What about Nintendo lately? I say lately because they have changed their focus in recent generations.
DS to 3ds was a big jump, and 3ds to Switch was arguably the biggest jump for any device ever. GameCube to Wii was an extremely tiny jump. Wii to Wii U was massive. Wii U to Switch was extremely tiny. I still can't really tell a difference between Wii U and Switch versions of the same game. To me, the Switch feels like a portable Wii U, and a 3DS on steroids, which is alright with me.
What's my point? Nintendo in recent gens usually pushes themselves on a device, followed by another device running on a similar level. I know they do this to keep products around $300 or less, rather than $500 like the other two companies do, but it doesn't allow their dev teams to constantly stay up-to-date with the latest hardware technology. They always make games that look insanely impressive on the tech they are using, but that's because those teams more or less stay on the same power level for 10-12 years and so get REALLY used to using it and optimizing for it. Wii U was a rough start, so I suspect Switch 2 could have a rough start as well as I predict it will be another massive leap forward for them and it will take their teams years to get used to it before they really start working efficiently. Switch 3, I predict, will have more or less the same hardware as Switch 2, but with some revolutionary new design like the Wii was to the GameCube or the Switch was to the Wii U.