I don't hope you think that the two markets are equivalent and can be compared directly, because that's as bad an assumption as saying the two do compete directly.

Games like Brain Training were huge successes on the DS, but smartphones and tablets might actually be more well suited for such games than the 3DS. Direct competition or not, there is ample opportunity for smartphones to steal marketshare from dedicated handhelds.

@ Rainbird. An HD port of Monster Hunter Portable 3rd was confirmed for PSN, so it ends up on both PS3 and Vita in due time, but i would imagine its impact being lesser (more comparable to the impact of Monster Hunter G on Wii, which only applied a short-term, minor boost in sales in the Japanese market), due to being a port of a game that sold quite well

This is somewhat unorthodox, but I think all of these companies that are strongly in support of physical products need to band together and start a giant ad campaign reminding people of the benefits of physically owning these products. Not just with games, but with books and pretty much everything that's gone digital recently. Apple and other tablet and e-book companies have been allowed free reign to extoll their benefits while bashing physical media, so I think it's time the latter fought back.

Why go on the offensive? I don't understand. The last generation showed that there is plenty of room for all 4 console manufacturers, they don't need to fight.

@underlined: Actually, I pretty much can. It's easy, why do you buy a PC? Most people do it for stuff like internet access and whatnot. Why do you buy a smartphone? To make calls but also for the PC-like functionalities, which regular phones don't have. In both cases, gaming is a secondary function. Now, why do you buy a games console? Most people will buy it for games. Here gaming is the primary function. The only difference then between the two is wether they're portable or not, but that's it. So maybe there is a tiny amount of competition between the two, but it's so small it's insignificant, they exist in largely seperate markets.

@bolded: Using brain training as an example, true it isn't suited for the 3DS, but neither is it for smartphones and tablets. Do you really see older people buying smartphones or tablets? It is much easier to just go into a store, buy a DS with the game, and go back home and fire it up, unlike buying an expensive phone, browsing through the thousands of apps, and downloading it.

And really, if we're going to lump smartphones and handhelds in the same market share pie charts, why don't we add regular phones as well? Those could play games, and I'm pretty sure you'd see declining marketshare for handhelds since quite some time, clearly showing how the DS was doing terribly ever since it came out. /sarcasm

Umm you see the flaw in your logic is that PC is a indirect competitor with consoles. In the 90's PC was such a huge threat that both Sega and Nintendo supported it from time to time to boost sales. Fact is until piracy became so rampant in the late 90's the PC was actually a competitor. A huge reason consoles survived was they were drastically cheaper then a good computer and they also used a control pad opposed to a keyboard+mouse.

Today computers are a platform we can't be to sure about. Because of rampant piracy its impossible to tell how much software market share is being lost to computers. The PC was definitly a competitor and even today does effect consoles in a big way either directly through sales or competition. The reason computers aren't as big is because software developers cut back support due to piracy, look at VGChartz for a perfect example. However if Piracy hadn't lost publishers billions over the years they would have supported PC as much as consoles and computers would have definatly driven console hardware sales down.

Another major difference, consoles hook up to your TV they are usually used in living rooms while computers are in the office. There is plenty of room to have both. But a major factor Iwata said he is afraid of himself is the ability to carry multiple devices. A guy can't carry a 3DS, Smart Phone and Vita along with him everywhere. He's going to choose one device, girls with purses might be able to pack two but why would they want another device that does essentially the same thing as there smart phone. Who's going to carry around multiple portable devices, look at MP3 players as a perfect example, ever since Smart Phones have become popular MP3 players are slowly dissapearing people don't care to carry an MP3 player and a smart phone its unpractical.

Also you mention Apple has only tried to get into the games industry twice. lol you are horribly misinformed you are forgetting their game console the Pippin. Apple also tried to attract game developers in the 90's but gave up, however Jobs has said multiple times that gaming is still at the back of Apples mind.

So why is iOS devices competition to handhelds where home consoles aren't.

- Price (Computers were way more expensive then game consoles) Infact I can get an I-Phone 3 for free with a three year contract. An I-Phone four for only 150$ still cheaper then a 3DS.

-Software (Computer lost all of its developer support) however iOS and Android devices have larger libraries of games then anything Nintendo has ever put on the market.

-Piracy , unlike computers piracy on the iOS is virtually non-existant. Meaning software will sell and developers will make money on it.

-Portability, you don't have room to carry multiple portable devices Nintendo is in competition for your pocket. Would you rather carry your 3DS or your phone?

If smart phones were not a direct threat to Nintendo do you really think Iwata would be shaking in his pants? Do you think Sony would be saying they hope 3DS doesn't bomb? Do you think industry exec's would predict Apple to take over the industry within 10 years?

Or are all these high paid executives with tons of education and experiance really dumb. I mean if Apple isn't a competitor then every president of almost every console manufacturer and president has it completely wrong. I mean Capcom, EAGames, Activision, Sega, Square-Enix..etc...etc.. all those publishers that are beginning to develop for iOS devices because they feel they are direct competition.

Yah they must all be nut jobs!

oh god, this. Not only are these games being made available on phones, but they are actually CHEAPER, i can get cooking mama on my phone for 4 bucks, Amazon has it new for 12, with S&H thats 16, four times the amount. You would have to be a lunatic not to get it for your phone. Ninty needs to match the price of the games sold on 3DS, it dont look good to have a game selling that much more on your system.

Stick with handhelds and accept a smaller market for now. I foresee a market for Outdoor Augmented Reality Gaming with glasses and gun. Nintendo should never drop handhelds.

Nintendo could drop consoles and make their handheld multi-functional.
Airsync connect to TV, beamer, VR glasses
Connect with multiple devices like traditional controller, motion controller, camera etc.

You're making a very big assumption in saying smartphones are the PCs of the portable space, and I don't believe your reasoning is sound enough. I agree with your points, but you are taking a very narrow look at it. 

1) Why are consoles popular? Because they're easy to use, and they provide lots of great games to play on your TV.

2) Why are smartphones popular? Because they're easy to use and provide lots of great apps, including games.

3) What makes a smartphone different from a PC? You have lots of things you may need to take care of, they're big and heavy to carry around (in most cases) and a good gaming PC can be quite expensive.

I know this is a very simple outlook as well, but gaming on your phone is much more real now that there are actually games to play on them. Angry Birds is a huge success, and publishers are putting more and more of their IPs on smartphones. There might be similarities to the PC, but there a lot of differences too.

And I have to say, I see more old people buying tablets then I do buying handheld gaming consoles. Tablets and smartphones are succesful with that audience for the same reason the Wii and Kinect is, it's a natural user interface, and it doesn't look intimidating to someone with very little technological experience.

Personally, I don't want nintendo to continue producing hardware. I think it's a sinking ship... but then again that's what many said about the PS3 (including me) and now it's my console of choice :p Maybe WII U could surprise me and be awesome, but judging from the leaked spec sheet and E3 presentation, I doubt it.
I want nintendo to continue making software, definitely, but I don't see where nintendo fits in the console market anymore, handheld wise. Apple and android phones seem to have the casuals covered, and the PSV looks like it'll get the hardcores.
So basically my answer to the question is I don't think they should or even can.
Where do you think Nintendo fits in OP?