They were right in many regards. The casual gaming audience disappeared in real time over gen 8 to phones. Even the 3DS just did "well" as a result. So sony went all in on the PS4 and Nintendo converged handheld and console to stand out.
It's coming around again now, but through emulators (Analog Pocket and various android handhelds), the blooming market of handheld PCs (Steam Deck, GPD, Aya, etc.), and the occasional novelty device aiming for small markets (Playdate, Gameshell). I don't know if we'll ever get another handheld like the Vita with its balance of power, build, and library.
Exactly. Smartphone games were clearly the reason why Vita+3DS sold much worse than PSP+DS. The Vita failed because the market wasn't large enough anymore to support two systems, and the 3DS had more exclusive franchises.
But I doubt that was due to phones. It's more factors like set top boxes, "smart" TV's with built in streaming apps and casting, and the decline of the need for DVD/blu-ray players.
I remember the days of the PS3 where many bought it simply because it was the cheapest Blu-ray player (which is saying something, given its slow adoption rate and infamous "599 USD" reputation), but consoles as a multimedia device has definitely fallen off. It's also infamously one of the worst market reads in the industry when Xbox One decided in 2013 to advertise as a set top box on its reveal over a gaming console.
But unlike handhelds, that lost "non-gaming" market did get made up for with a growing market of dedicated gamers (indicated by games continuing to sell increasing numbers of copies). So it simply evened out instead of trending downwards.
Sony never really cracked the code of putting out good content at the consistency of Nintendo. Even though they managed to put out a handful of gems over the years, they just don't seem to know how to leverage it. And in the past few years they seem to want to actively undermine whatever they had, disbanding Sony Japan Studio, and they've floundered, spending the entirety of the PS5's life remastering PS4 games that didn't need a remaster. And sitting on Bloodborne all these years, while it's still stuck at 30fps...
At the time it came out mobile SoCs were improving so rapidly it was never going to maintain an edge over phones for the normal console lifespan. You rightly call out the storage, but it is far from clear what other options really existed. Flash/SSD storage was quite expensive at that time.
And market wise, the Sony audience (even more so then) would not have been remotely receptive to the sort of games that made the Switch popular later on.
It was doomed from conception, and the other mistakes were inevitable after that.
The Switch still happily runs games off microSD cards. The home consoles didn't get SSDs till 2020. For Vita, the cards were fast enough. The problem was the proprietary nature of the cards. They just cost way too much for the size especially as time wore on. I think at the time I imported my 64GB Vita card, a microSD card of the same size was half the price. By the end of the Vita's life the 32GB card was laughably bad value.
This is a surprisingly profound question, because the mobile people absolutely could do games that look better than that and largely found it is not worth doing so. It is partly tech, in that people prefer battery life (you also cannot spend more if your battery has run out), but also technical aspects of graphics simply don’t impress people as much as they did in the 90s. “Content”, and volumes of it, is far more important.
The Vita cards were fast enough but not big enough for games that the Sony demographic would want. For example, a Vita scale Gran Turismo or Metal Gear Solid entry is simply not going to improve on the (great) PSP entries.
By the time the Vita launched we had already been releasing Android builds for the Xperia Play which were straight up ports from the PSP, as betrayed by the almost uniform 1.6GB per game.
Edit: to add a concrete example, the developers of NBA Jam mobile (which was great) went back to 2D afterwards, and came up with a very nice engine for streaming 2D animation and a whole content pipeline system for using it. That ended up making huge amounts of money and entertained tens of millions of people for a long time.
But then again, Genshin was 8GB at launch. Definitely shouldn't underestimate how quick storage costs came down from 2012 to 2017 when the Switch launched. enabling larger games to casually be made.
I have a hacked Vita Slim and it is wonderful. The size is great, the controls are great, and the homebrew scene is incredible. It really holds up.