Definitely the former. To get the easy part out of the way first, the PSP was the first handheld not made by Nintendo to be a commercial success. Before the PSP, the best-selling non-Nintendo handheld was the Game Gear, which sold only 11 million units globally. Needless to say, a non-Nintendo handheld selling over 80 million units globally was quite an accomplishment, one that may never be repeated. For whatever reasons, the PSP succeeded where the Game Gear, Lynx, TurboExpress, and others failed. Needless to say, the unexpected success of the PSP combined with the phenomenal sales of the DS grossly inflated seventh-gen handheld sales. Together they sold more than every other preceding handheld (the Game Boy, GBA, GG, and all the also-rans) did combined, and they sold that much in a shorter span (we're talking 15 years between the launches of the Game Boy and DS). Just look at how well the two of them stack up together when compared to the console market (note that in this graph I'm assuming the 3DS sells 75 million and the Vita sells 15 million).

Speaking of the DS, it turned into an absolute beast once the DS Lite came out. From February 2007 to April 2010 the DS only dropped below 400k in a single NPD, that being January 2008. That's an almost unbroken streak of 400k+ monthly sales for over three years. The DS also holds the distinction of being the only system in U.S. history to sell over one million units in a single non-holiday month (April 2009, the month the DSi released). In Japan it rarely dropped below 100k per week during the period of January '07 to August '08. Similarly, in Europe the DS only dropped below half a million per month four times from 2007 through 2009.

By comparison, even at their bests the Wii and PS2 couldn't even come close to matching that kind of a streak. In the U.S. the Wii managed a 14-month 400k+ while the PS2 managed an 11-month 400k+ streak. Here's the total number of non-holiday months each system sold over 400k units (that I have NPD data for):

PS2: 16
Wii: 25
DS: 39

In Japan, the PS2 only sold over 100k in a non-holiday week four times and rarely even broke 75k. The only time the Wii breached the 100k mark in a single non-holiday week (both Famitsu and Media Create) was the week Dragon Quest Swords came out. Compare that to the DS staying over 100k per week for most of a 17-month span.

Needless to say, we shouldn't expect anything to replicate that kind of success. The DS was a once-in-a-lifetime thing that caught the gaming world on fire. It sold more in just five years than the original Game Boy did in 13, thus becoming the new second best-selling system ever, and it came dangerously close to passing the PS2 despite its much shorter lifespan.

So yeah, last gen was much higher than normal. The Vita isn't doing too great, but the 3DS is doing well. Of course, some people like to pooh-pooh the 3DS's performance because it might not pass the GBA in lifetime sales, but that's all the U.S.'s fault. For whatever reason, the GBA sold a hugely disproportionate amount of units in the U.S. (the U.S. handheld market was also rather inflated during the short time the GB Color was around; perhaps the Pokemon craze had something to do with that). Had the U.S. market behaved more like the rest of the world in handheld buying habits, the GBA might have sold only 60-65 million. In Japan the 3DS passed the GBA in lifetime sales months ago and is on track to pass the PSP sometime this holiday season. In Europe the 3DS may also sell about as well as the GBA. All things considered, the 3DS's sales are far from "doom" levels. Going by Nintendo's sales region system, if we assume 25M each in the Americas, Japan, and "Other" regions (Europe and other Old World markets outside of Japan), the final tally would look like this compared to previous Nintendo handhelds:

Not bad considering how inflated GBA sales in America were.

Pokemon Mystery Dungeon? Fire Emblem and Bravely Second's inevitable localizations? Animal Crossing? Plus, Zelda and Xenoblade was just a month or two ago.

Dont game consoles traditionally look barren right before E3 too?

4 million sales globally across 13 games on the DS & 3DS, for a staggering 307,700 per-game average. Clearly FIFA was tearing up the sales charts on handheld Nintendo systems. Or not. It probably hurts Sony more, with FIFA selling 10 million copies across 17 games released on the PSP and Vita, but even then you're still talking about the series averaging half a million per game (though most of the main series entries sold over a million). With DS & 3DS owners not caring much about FIFA (we're talking a negligible percentage of DS owners here buying even the best-selling FIFA game for the system) and the Vita bombing, EA probably isn't bothering. With the handheld market being so staggeringly large last generation, even EA took the time out to release a game series that generates most of its sales in one region, but EA was never a huge player in the handheld market to begin with (they had moderate success with Harry Potter and The Sims games for the GBA and DS, but that's about it), so, uh, big deal if they're not bothering with FIFA anymore.

EDIT: Oh, and Soundwave, I've been over this with you before on this subject in past threads. I'm not getting into another circular argument with you on this. I've explained all that I need to.

Oh please, you make it seem like that is the end of the world. As long as the most important publisher of handheld games can be bothered to make games for Nintendo hardware, handhelds aren't going to go away.

Well, tough luck. Should have bought more games to show EA and others that there is a market.

Yes, heavily discounted. In other words, far below the original RRP. Just because you've paid a few pounds instead of a few pence doesn't make it any less of an issue if you want to show support for a company.

I mean anywhere between 5-15 pounds. Or are you telling me that you paid 30 for each copy of FIFA?

See, by waiting for FIFA 13 to drop to 13 pounds you became part of the problem. The timing of that release was during the crucial period where the future of the Vita as a whole was at stake, but you dropped the ball. When you spent 25 pounds on FIFA 14, it was already too little, too late.