They've believed their own hype
To focus on only SmartPhones is nuts. Once the novelty wears off, lots of users will go back to the simple camera phone plus a tablet, and SE will have nothing to offer in either space. My C902 is brilliant - long batter life and it fits in my pocket. It's only18months old and to replace it I'm having to buy Nokia to go with my tablet. Only Nokia recognise that market still exists.
Many older users change their phone less often and don't want complex phones, so what will SE have for them in the year to come?