They can release a smaller version, but IMO it won't sell better. Just like the smaller 3DS models do not sell better, or the smaller iPhone that flopped isn't selling better, or that PSP Go that was smaller didn't sell better. 

When people try out both side by side, the bigger version almost always IMO gets the better response, especially with gaming hardware. It's just not worth it to most people.

IMO, Nintendo will not release a version of Switch without Joycon support either. It's a money-magnet for them to have people buying Joycons over and over again and beyond that I believe they have games in development that work with specific Joycons that they plan to sell in the future. 

Switch dedicated mini handheld E3 2018. Switch dedicated "Shield" home console 2019. Switch hybrid as is, 2020 full upgrade handheld and dock.
The dedicated home console is a bit of a stretch, but since Nvidia already makes the console, and Switch is basically stock Tegra, making a Switch "Shield" should be cheap and easy, and could be sold as a flagship premium NiN device like Pro and Scorpio. This would also give more incentive to 3rd parties to port to the Switch ecosystem, given the future Switch "Shield" consoles acceptable hardware, in terms of performance compared to the competition.

Bigger ain't always better or more popular. Sometimes there is a sweetspot.

iPhone 6/6S/7 sold better than iPhone 6/6S/7 Plus, the middle-sized 9.7''-iPad sells better than the 7.0'' and 12.9''-models.

I would prefer a better pocketable handheld with 200 - 300 g weight instead of the current Switch with almost 400 g.

You'll see two new Switch models next year IMO, both using the 14nm Tegra X2, one will have double the battery life of the current Switch and it will eventually phase out the current base model.

These models IMO are already finished inside Nintendo's R&D or almost already finished and they're just tinkering with them now. 

You missing point, Switch already has huge screen for handheld and already has higher price point, so there is no need for even bigger screen or higher price, but there will definitely be need (when 3DS dies) for smaller and cheaper version. OG 3DS had small screen, so it made sense to release device with bigger screen not smaller, but situation with Switch is opposite. Also you need to realise that Nintendo when 3DS dies will not have lower price point ($150-200), so they will definitely need cheaper version of Switch, not more expensive one than current.

There is no side by side comparision, like I wrote, not everyone are willing to pay $250-300 for Switch, not everyone needs TV mode, some people want smaller and more practical Switch with lower price point.

Switch Mini/Pocket can have Joycon support also.

There are plenty of reasons for a bigger screen. The current Switch is pretty hard to play 2 player games on largely due to its small screen size.

A version with a bigger screen is going to happen, I have no doubt about it. And I would bet it will pretty quickly become the best selling version too. 

You can take a ruler and measure it right now on the current Switch even, you can see they could increase the screen size to 7.4 inches roughly without even increasing the size of the system, a larger screen version is practically already baked into the current design. 

The appeal of the system is it's a *portable console* that allows for bigger experiences than what people are accustomed to, not a 3DS-2. If it was a 3DS-2, it would be selling far worse right now IMO. 

Its not that hard, and actual current Switch is already big for handheld.

I have doubts about bigger version of Switch, I don't say it won't happen at all, but I don't see point for it. I dont it will sell well either, nobody really needs handheld that's bigger than 6.2", even here people saying that they would buyed smaller Switch not bigger.

Hardly we will have two new Switch models next year, too early.

You're thinking of everything through the prisim of the handheld gamer. You guys are quite frankly a small and shrinking market. 

Even kids don't like smaller screens. 

The Switch is having success because it's doing something different from the 3DS ... and wisely so. In a world of free/low budget gaming being the reddest ocean, Switch justifies the concept of a portable game machine in the smartphone world by offering a console-type experience. 

3DS is the worst selling Nintendo portable in their history. Lets not forget that either. Changes needed to be made.

What you have wrong IMO is the thinking that Switch is "wrong" for being too big and all that. You're wrong IMO. The Switch is suceeding precisely because of those differences. It's a different product and a different product is needed for a different world, and we are in a different world thanks to smartphones/tablets. The DS design was right for the world of 2006 ... it's not anymore though, Switch is more attuned to the consumer world of today. 

Making a smaller version I feel would complicate things a little. If the console also has detachable joy cons, they would have to release smaller versions of those as well. And if they made a larger one, well... that would just be a lot of different types of accessories bloating their sections at stores. Perhaps they'll do dedicated portable and console versions of the system at a cheaper price, but they would need to have different names, since calling them 'Switch' wouldn't make sense. On the hardware upgrade side, I don't really see Nintendo doing another more powerful switch, since power isn't really one of their focuses when it comes to their games.

Also, I find it somewhat funny reading about them thinking the console is too big to act as a hybrid. I mean, who decided that? Sounds like a minority speaking for the general audience, which I don't think to be the case, so far.

Bolded part -> Exactly!

I don't think we'll ever see a physically larger version of the switch, but I definitely see a premium model which retain the $299 price tag as the original switch gets a price reduction. This would be for people that don't mind paying just a little bit more for the best experience. And when talking about gamers that's a lot of people! Nintendo can extend the screen into the dead space currently on the system, resulting in a significantly larger screen without making the system any larger. Add to that a much bigger hard-drive and some extra batteries in there by maybe making the premium model a bit thicker.

The Switch is a portable that is a bit too big to cram into your pocket, so people will already be used to putting it in a bag when they're on the go. A premium model with bigger screen but same w/h dimensions and a bit more depth for batteries would just be the exact same experience.

Now it would also be ideal to get a true pocket version at a sub-$200 price, but I don't see them getting rid of the joycons for it so they could only shrink its width and depth, but I dunno maybe that would be enough to allow it to reasonably fit into to pocket. Though I guess if they demand that all games have to work perfectly well with a standard controller setup, then they could make a Switch pocket that has no joycons, thus easily being able to hit that sub-$200 price and really being able to make a pocket version, and you could still have a cable to hook it up to the dock or tv or whatever and play at home using a joycon grip or the pro controller, so it would still technically be able to "switch". Now that I think about it, a joycon-less pocket switch that can still be played as a console is feasible and would really get it down into handheld price territory, so wouldn't be suprised to see something like that release in 2019. 2018 is probably too soon.