It's not that they had no confidence. It's that they took Nintendos approach on hardware. Sell low at a loss, and make the money on software.
Problem is, you could pirate every single game on dreamcast. Just get a legit copy of the game (renting, buying and returning, borrow from a friend), and have a CD burner.
Then you could make a 1:1 copy of the game in roughly an hour. As the year 2000 went on, websites even made it easier by posting the game files for download. If you didn't have broadband (many didn't at the time. Most had 56k), you could go to your local library and carry a USB stick.
So every console sold cost them money. And the software was performing abysmally. Plus, PS2 was right around the corner. XBox was an unknown, and Gamecube was assumed to do better than it did.
From a console war perspective, the year 2001 may have been the most competitive year EVER for video games.