We don't need datacenter-level performance in a handheld device just like we didn't need a storage room in our backyard for a mid-sized, tape-based NAS because technology did its thing and gave us something smarter, smaller and faster.

Your argument is true if the number of parameters in an LLM is the only measurement for quality - a bit like number of bolts per aircraft or lines of code in software. I'd bet you that an 8b parameter LLM will in 5 years outperform the datacenter-level LLMs of today.