It isn't a competition
Trying to catch up with Sony and Microsoft is irrelevant beyond belief at this point. Nintendo's road diverged a long time ago, and now it seems wiser to simply carry on ahead. Microsoft and Sony are both racing to cement their place in the living room, acting as the hub for all entertainment. High-end graphical capabilities are at the centre of what they aim to achieve, and they both manage to do that remarkably well.
Nintendo's consoles have a different approach: People buy Nintendo consoles so they can play Nintendo games. Strip away the shining veneer of graphics, and it's what's underneath that really matters. Some gaming experiences aren't possible without modern tech, but that doesn't mean that simple games can't be equally enjoyable.
The rise of the iPhone is a reminder of this. Angry Birds might not float your boat, but anyone who looks will find something they love. The rise of lo-fi gaming devices is a reminder that graphics aren't actually that important: Good art style and atmosphere always come first. Nintendo has always loved simple game design, so what's the point of investing millions in hyper-expensive next-gen graphics?
The Wii U's specifications shouldn't come as a surprise, and they don't provide a reason to start worrying either. Nintendo doesn't do things like anyone else, and because of that it doesn't have any clear competitors - the Wii sales figures alone are enough to prove that. For tech-obsessed fans it's a kick in the teeth, but Nintendo would be daft to change sides when it's winning.
Jimmy White wouldn't step into a boxing ring, so why should Nintendo?