Nintendo doesn't have the luxury of sinking billions of dollars into R&D for another commercial flop. They should build one device, and do it well.
If they build one device, it shouldn't be (primarily) a handheld. They're probably more likely to get their market cannibalised in that market in future than the home one!
They should continue to try and define a market for both. If they make something fun and attractive enough, people will buy it.