Definitely a fair point regarding 1st party software which is why I suggested scaled down versions of Switch titles which wouldnt take the same development bandwidth as ground up software. Not to mention Nintendo could outsource development for their IPs, they've done it in the past.
Regarding SNES, NES minis, those have a ceiling for profit since they're only making money off hardware essentially.
Scaled down versions of Switch games on a platform slightly more powerful than the 3DS would require so much work that they would be their own games, so essentially the same situation as Wii U and 3DS. Any available development resources (inhouse and outsourced) are better used for Switch software because of much higher profit margins compared to making games for a hypothetical budget handheld and budget-conscious customers.
Budget-conscious customers aren't going to spend much money on games and accessories, so developing new games for them doesn't really make sense to begin with. You can't expect such costumers to buy more than one or two $40 games.
On the other hand, Mini variations of past Nintendo consoles - there's nothing stopping Nintendo from introducing GB/GBC Classic and GBA Classic - tick all the boxes. They are a low investment and come with guaranteed sales. Those redesigned old consoles are such a wonderful solution for Nintendo.
Budget conscious gamers would no doubt spend $300 for a lower budget handheld, several games etc than $300 for a standalone Switch with $60 games. If you type in google "why is Nintendo.." the most searched term is "why is Nintendo Switch so expensive". At this juncture, Switch is still a premium system in consumer's eyes. Id imagine parents of 5-12 year olds are reluctant at this point. A budget system would fill that gap.
A smaller $179.99 portable focused Switch should cover that market quite well. I would look for it to drop around 2020 to make a strong Nintendo presence in the wake of the next PS and XB devices.
True, though I believe there's a market for the $99-129 range as well. The 2DS/2DS XL series has done well and is what is currently pushing sales of the aging system.
Let's also not forget marketshare, why settle for 30% when you can have 40-45%. That always looks sweet to investors.
Keep in mind, all this is hypothetical as well as wishful thinking because I love Nintendo handhelds. While I love my Switch, it feels more like a home system than handheld and doesnt completely fill my handheld void.