Of course they are able to do it. The problem is that they are being overambitious with the graphics and end up being having to downgrade the final version of the game.

Part of the reason is that gamers are demanding "next-gen" looking games and anything realisting does not seem good enough. So they end up sacrifising fps or resolution to offer the graphics that people value so much.

No... though Sony definitely knows more about the NX than any of us here -they probably only had a foggy idea of what it was when it was announced last year. Sony wouldnt have created a device that is E3 ready practically (if rumors are true) if it was a response to Nintendo

But how is Sony is going to translate that high end phone model to game consoles?

Phones have become a everyday necessity, and consoles are still more of an leisure accessory.

Are consumers yearning that much for frequent updates in the console space? 

Are there many other examples parallel to the demand for a yearly iPhone upgrade in the consumer electronics sector?

I doubt there is only one or even main reason for this. It is more a decision based in several distinct factors, that Sony thought could be dealt or exploited by NEO.

They definitely considered the possibility of a stronger nintendo machine. Wii U was failling badly, but Nintendo was not giving any signs that they were over with the console market. If they were, SONY would be the first to know, being one of the most important places for a third-party Nintendo to go.

That said they also considered, to name a few:
- Possibility of Microsoft trying to react to the current situation with a new machine
- Possibility of new competitors: SteamMachines, Apple, Amazon
- Necessity of more power for VR
- Consumer habits: people are willing to buy new smartphones every year, and they are just as expensive as consoles. While we are talking about two very different markets, this consumerist mentality has already proved to be present in many tech-related market. It is a great opportunity to sell

Besides all that, this strategy was most likely saw as an option since the beginning. Instead of trying to sell a $600 stronger machine from the go (like the PS3), first capture the userbase with a marginally better machine for a competitive price and than release a really powerful version, but more expensive.

This does refers, at least in some level, to the Apple/Samsung strategy of releasing two versions of their new smartphones, but in this case it has less to do with userbase.

But unlike Sony, Apple and Samsung's users don't pay $400 every 2-3 years for new phones. Most of their users pay $0-$100 up front and pay the rest of the phone off over the course of their cell phone contract. Without cell phone service providers subsidizing the cost of these phones, most cell phone users wouldn't update their phone every 2-3 years. They'd wait much longer, or if they did, they'd buy phones outright at a much lower retail cost than the phones they get now.

If Sony's idea is to set up some kind of service where I spend $15-$20 a month and I get a new console every 2 years, then I'll be more open to the idea of this model. But Microsoft tried this with the Xbox 360 already, and very quickly and quietly pulled the plug on it.

As odd as it sounds, Sony and Microsoft always seem to take measures when Nintendo is about to pull a move like a new generation. This happened before when rumors about a Nintendo console using a second screen were florating around for a long time: "coincidentally", Microsoft announced the smartglass on the same year Wii U launched and Sony introduced the PS Vita as a second screen to PS4 not much later.

Now you may think "the Wii U is a failure, why would they bother?". Well, because by the time it launched, no one knew it would flop that hard... there was always the possibility of it becoming a modest success, like the Xbox One these days, for example.

So I don't know if they rushed/created the PS4k to counter NX specifically, but I'm pretty sure both Sony and Microsoft are watching Nintendo very closely. Just the other day Phil Spencer said they learned the hard way not to doubt Nintendo when Wii launched.

So, I don't think so.

I do think if NX wasn't coming out well before Sony was ready to go to the 9th gen that PS4.5 would not exist.

No we just recently heard that NX will be stronger than PS4 ,Sony can't decide to release an upgraded PS4 that rapidly