(They want to be profitable on hardware too, or at least break even, I don't think they'll go for loss on hardware anymore, cost them too much this gen.)
I still believe this is an incorrect assumption.
Selling at a loss would have still been a boon for MS had it not been for the RRoD, and the PS3's problems lie with WHY and HOW MUCH of a loss they were absorbing, which was due to pushing Cell and BR. If not for those things, (and launching after the 360, not having an established online presence, being hugely more expensive while not being able to showcase any additional "power"), the strategy of selling the PS3 at an initial loss would have been successful again.
The tablet/smartphone games market shows two things. 1) The population of gamers is now larger than before. 2) The majority of "gamers" now want quick, easy games without putting a high priority on graphics.
You can draw a couple conclusions to that, one being that it's okay to not build powerful systems because the gamers don't care.
Or, you can draw the conclusion that if you want to attract the new larger market of gamers you have to produce a product that is worth buying - it needs to have a clear and obvious "WOW" factor. It should also be a multi-purpose device (which means an increased focus, not a decreased focus, on apps and DVR features, etc)
I think any company following the first theory (customers don't care), won't be selling many consoles. They won't attract "hardcore" gamers, and tablet/phone gamers won't see the point to move off their current devices.
The only way a company doing that can survive this next generation is if ALL the companies follow down that same path, so the only alternative is the PC. Which actually would kill console gaming, probably for good.