Nintendo is a business, so they are first and foremost interested in the accumulation of wealth. They saw what happened with the last generation in which they fought in the technological battle, and lost out, despite being close to the most powerful console on the market. To avoid such losses this time, they decided to pursue a different business strategy, aiming for new markets, saving money by not making a 500 dollar system, which is pretty much unavoidable if you want the next-gen edge, etc.
Clearly so far it has worked.
In my opinion, they didn't go for HD gaming because they didn't need to. The graphics during the last gen were really enough by a lot of peoples' standards (you can't argue with sales), myself included. I just don't need hyper realistic graphics, although I do appreciate them. In particular, Assassin's Creed I was concerned about missing out on, but thats why I have a PC.
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