Earlier quoted context omitted.
They're not choosing to compete with smartphones - smartphones are eating into their market thus forcing competition. As smartphone cameras have improved the more they've eaten into the market. Note that this argument does not require that all users of their cameras would ever consider using a smartphone instead.
What market? Smartphones and high end cameras aren't really comparable. They compete in the sense that they're both able to take pictures, but they don't compete across all possible dimensions. I mean, I could be wrong, but these don't look like substitute goods. Smartphones and crappy cameras certainly are, but not not smartphones and high-end cameras. But using cheaper parts does make cameras crappier, so doing so…
Of course the dslr can do more, but the ease that a phone + software can make a wide range of really nice pics is eating into the consumer level dslr market. I like taking pictures, so I don't mind fidgeting on my dslr for the perfect shot. Meanwhile my wife has taken multiple great looking pics on her phone is wondering what I'm doing ;)