Not even 6 years before that Nintendo was at the top of the industry with the SNES. N64 had a rough life, but otherwise they were still pretty poised to take back the industry that they helped save. It didn't happen with GC, but it definitely happened with Wii, and then again with Switch. Nintendo had every right to laugh.

I think that you have that the wrong way around. 

Hideki Sato talks about creating SEGA Saturn hardware and Sony asking SEGA to go third party

They had their own semiconductor factories. Once when I was talking with Ken Kutaragi [the creator of the PlayStation], he said “Hideki-chan”—he refers to me using the “chan” diminutive—“Hideki-chan, there’s no way you can beat me. Where are you buying your processors? From Hitachi. From Yamaha. What about your CD-ROM drives? You’re buying everything. By buying from Hitachi, Hitachi is profiting. You can’t make anything yourselves. We can make everything ourselves, including custom parts. We have our own factories.” Near Nakashinden, they had a huge factory where they made audio equipment that they were using for the PlayStation. Their cost structure was completely different.

“That’s the way it is, Hideki-chan,” Kutaragi told me. “So quit the hardware business. Why not just do software? We’ll give you favorable treatment.” He wanted us to go third party. We had been going for so long in the hardware business, for better or worse, and to go third party now? We had been half-heartedly successful in America once, and this made it impossible to quit the hardware business. Maybe if the Mega Drive, the Genesis, had been a failure, things would have been different. But we had a strange taste of success.

http://segabits.com/blog/2018/06/29/hideki-sato-talks-about-creating-sega-saturn-hardware-and-sony-asking-sega-to-go-third-party/

Prior to that, Sony had been the one courting Sega on teaming up to create a console before the PlayStation was developed, after Nintendo had blown off Sony.

Sega and Sony Almost Teamed Up on a Console

"Sony came to us after they had been rebuffed by Nintendo," Kalinske recalled. “They had wanted Nintendo to use some technology that they had, and Nintendo instead chose to work with Philips. That really annoyed Sony. Olaf Olafsson [Sony Electronic Publishing President] and Micky Schulhof [President of Sony America] came to my office and said, 'Tom, we really don’t like Nintendo. You don’t like Nintendo. We have this little studio down in Santa Monica [Imagesoft] working on video games, we don’t know what to do with it, we’d like Sega’s help in training our guys. And we think the optical disc will be the best format.'"

"Sega of America and Sony were both convinced that the next platform had to use optical discs. We had been working on this CD-ROM attachment to the Genesis, which we knew really wasn’t adequate, but it taught us how to make games on this format," said Kalinske. "We had the Sony guys and our engineers in the United States come up with specs for what this next optical-based hardware system would be. And with these specs, Olafsson, Schulhof and I went to Japan, and we met with Sony’s Ken Kutaragi. He said it was a great idea, and as we all lose money on hardware, let's jointly market a single system – the Sega/Sony hardware system – and whatever loss we make, we split that loss."

Kalinske took his proposal to Sega's Board of Directors, who promptly vetoed the idea.

"Next, we went to [Sega president] Nakayama and the Board at Sega, and they basically turned me down. They said, 'that’s a stupid idea, Sony doesn’t know how to make hardware. They don’t know how to make software either. Why would we want to do this?' That is what caused the division between Sega and Sony and caused Sony to become our competitor and launch its own hardware platform."

https://www.usgamer.net/articles/sega-and-sony-almost-teamed-up-on-a-console

Classic Nintendo arrogance. There haughtiness is even more pathetic when you realize...

The Nintendo 64 underperformed
The GameCube was their worst-selling home console to date, and apparently barely broke even.
The Wii U tanked and the 3DS sold only about half of the units of the DS and even fell short of the GBA. All this after the titanic double threat of the DS and Wii.

Nintendo would laugh even if their hardware was failing and the same proposition was made. As long as they have billions in the banks and keep their executives rich, that's all that matters to them. I don't think Nintendo will be bought out. I just think they'll eventually stop making hardware in the 2030s or 2040s and move over to PCs and smart devices.

wait when did nintendo become the japanese governments most prized company

They must be doing something right to have those billions in the bank.  They are the only video game company to have survived in the hardware space continuously since 1983.  Besides the Wii U, Nintendo has always managed to make a profit of their hardware regardless of whether it sells 20 million or 100 million units.  Look at the PS3 which sold over 80 million units, but initially wiped out all of the profit made from the PlayStation and PS2 combined.  Why wouldn't Nintendo be more interested in their bottom line than anything else?

A decade later, the former chief Xbox officer revisits his critical decisions | VentureBeat

"Microsoft lost $5 billion to $7 billion on the original Xbox, launched in 2001."

Nintendo, Gamecube and profit. - System Wars - GameSpot

"With the exception of the small period of time when Nintendo cut the price to $99, Nintendo sold the Gamecube with profit on every unit. Sony did not do the same with the PS2."

Nintendo vary much had the "last laugh" that generation, and the next one, and the next one.

GC still sold the same range as Xbox so if their worst selling at the time matched MS efforts that says a lot especially as the pitch was about hardware to compete with Sony and the Xbox never even got off the ground in doing that leading to them dumping the platform in 4 years, only the top 10 selling platforms in history have managed to sell half of what the DS sold so that's not really a failure of any sorts especially when that half is in the same range as MS' best showing. Fact is Nintendo are in both the portable and home markets that's what MS would be gaining two parallel markets one which Nintendo has had absolute dominance in while Nintendo would gain nothing but new overlords, MS only competed against their two worst home showings not because of anything they did but because of Nintendo's own mistakes yet still the latter simply brushed it off and came back stronger because when on form MS simply can't keep up no matter what hardware they put out that's why MS got laughed out.

Profit should be what we are tracking here, not operating income. Just saying.

Wait, Nintendo was expected to know the future? If so, they probably saw the yen that Switch, DS and Wii were gonna make and that they would not lose any real money in even their worst years and they found everything even more funny. N64 wasn't as bad so of course Ninty was gonna laugh. You seriously think Ninty was in any position to even consider being bought out? Like of course they would've taken it as a joke from Microsoft, I would do the same. And Ninty probably treats their employees better than most companies and the top execs even gave up their salaries in their worst years so they wouldn't have to fire anyone and keep the investors satiated. They also work hard to avoid crunch and other than some stupid moves, they treat gamers fine as well. 

So glad they felt it was a ridiculous idea. MS does better hardware? lol not at that time