Nintendo can afford to play the long game here. They're still bringing in lots of revenue from their handheld systems. There's also still a lot of money in merchandising on their core franchises. One failed console isn't going to ruin them.
In my opinion, Nintendo's console problem stems mainly from a lack of vision and a failure to execute. These failings say nothing about their ability to do so, just that they were unable to do so in this case. The answer is simple, cut their losses, and try a different approach.
I don't think the concept of the Wii U is fundamentally broken, it just needs some work to entice third party development and to fix the hardware problems.
They can turn it around. I think it's a good bet they will.
Nintendo is used to developing for old school consoles; boxes with discs or cartridges and where people play together in one room. But when nearly every person has a connected smartphone, an HD TV, and broadband the expectations for a system are well beyond what Nintendo has proven they can do.
Until they accept they don't have the skills to do that part properly or start to believe that it is actually important then they will continue to fail.
Sure, why not?
Nintendo really are great at making games. I would have loved to play their more recent games on a 360 or PS3. As it is now, I just don't get to play them since I don't see much value in the Nintendo consoles. The only thing they have to offer on their consoles is a few games from their leading franchises. Don't get me wrong, those games are probably stellar, but it's not enough for me to buy a console just for those.
How long can you sustain a console business on first party titles alone?