This is something I've been considering writing for quite some time, but in light of Reggie announcing support for the 3DS past 2018 and the resulting, prevailing skepticism, I thought it was probably time to share my thoughts.
Anyway, while I have no idea where Nintendo will go with their 3DS/Handheld line, I do feel that we are certainly in error if we assume Nintendo plans to phase it out. This will not be an argument in favor or against the 3DS line being dropped, but rather a look into why Nintendo might choose to keep its handheld line going despite what most seem to think. The reasons for Nintendo maintaining this line are myriad, and I'll list them below.
The Faulty Gameboy Advanced/DS Comparison
I think this should be addressed first, as it seems to be the main source of skepticism among the gaming community, including myself initially. For those unaware, the DS was initially marketed as a "third pillar" experiment by Nintendo to be supported alongside the GBA and home consoles. Of course, within a year Nintendo saw that the DS was catching on and ceased production of the GBA despite being a fairly successful handheld that still had support and fans. This has lead many to assume the same will occur for the 3DS despite Nintendo's claims to the contrary, but the situations are sufficiently different to be flawed comparisons for the two following fairly obvious (once one considers them more closely) reasons:
1.) DS Backward Compatibility: The original DS was backwards compatible with the GBA, essentially adding its entire library to the DS's own. This rendered the GBA largely pointless. The Switch, as we all know, is not able to play the 3DS games, assuring that the two libraries do not overlap and that a 3DS is required to access that library.
2.) DS and GBA Were Both Handhelds: Again, this is a clear distinction between the two. In both instances there was talk of "third pillars", which was largely a tactic to hedge their bets and not risk losing sales by going all-in on a new, untested concept. The difference, of course, is that the DS occupied the same target demographic and price point as the GBA while both being handhelds and actually sharing a library. In the case of the 3DS, though, this overlap does not exist, and in fact in both instances it was the older system that experienced an overlap of purpose and price point that was dropped (the GBA and Wii U).
Once that comparison is removed as evidence in favor of the 3DS line being dropped, there's still other reasons to believe Nintendo will keep it around as long as they can.
Nintendo Has Dominated the Handheld Market for Nearly 40 Years
It's a bit hard for me to believe, but Nintendo has essentially been in the handheld business for nearly 40 years. Starting with their very successful Game and Watch line in 1980, they have offered some of the best portable gaming experiences ever since such a thing was ever conceived of, and with the advent of the Gameboy they embarked on an unparalleled level of domination, only really ever facing stiff competition once in the form of the PSP (which it still doubled in sales). Just for fun I thought I'd list market shares per handheld gen (as defined by the wikipedia page, where they lump handhelds into console gens without providing a separate gen list) below to illustrate the near monopoly they've had in this market:
Gen 2-3 (Game and Watch): There's not much information on this era, but it begins with the Microvision (I actually have one, it's pretty nifty but screen rot has ruined them) which Nintendo has stated they used to design their Game and Watch line around the flaws and issues that said Microvision encountered. While there's less information from this short stretch (basically tail end of 70's and first half of 80's), it's clear that the Game and Watch was easily the biggest success.
Gen 4 (Gameboy): ~90% Market Share
Gen 5 (Gameboy Color): A little difficult to find, but looking through sales figures it appears to be about 90% market share again
Gen 6 (Gameboy Advanced): ~96% Market Share
Gen 7 (Nintendo DS): ~65% Market Share
Gen 8 (Nintendo 3DS): ~80% Market Share
As should be obvious from the above information, the handheld market has long been Nintendo's bread and butter, and while tablets and smartphones certainly impacted sales in recent years it is still a sizeable market that Nintendo continues to nearly monopolize, and they still wield the requisite killer apps to spur the kind of sales that others simply can't manage at a similar price point.
As weird as it is to consider, with the exception of a couple of dedicated pong consoles Nintendo has been in the portable market for longer than they've been in the Arcade and Console market, and it has certainly been better to them on average than its consoles have. Given this almost unprecedented run of success, Nintendo definitely won't want to wave the white flag and leave this market if it's at all possible to stay.
Nintendo's Business Philosophy Supports a Two Platform Environment
If there's one thing that largely seperates Nintendo from everyone else that has entered the gaming hardware market over the past few decades, its their combination of innovation with safe, frugal bets (generally two things that are incompatible). You don't last 130 years without being cautious, and this careful approach, regardless of its pros and cons for gamers, has served them well.
It is for that reason that Nintendo has been constantly attempting to diversify their offerings since before they began making games, and it is a big reason why they've chosen to maintain two different hardware markets concurrently for decades now. For instance, Nintendo had a somewhat comparable experience to Sega in the console market, with the underperforming Saturn and money sink/low selling Dreamcast being fairly comparable to the N64 and Gamecube (though not as severe). The difference for Nintendo was responsible finances, combined with a successful portable market that was able to keep them afloat. The 3DS was able to do this to some extent throughout the Wii U's run as well.
Essentially, having two platforms means they don't need to put all of their eggs in one basket, and it also generally means they always have at least one successful platform to fall back on should their newly introduced (and often longshot ambitious) hardware not stick its landing. It provides for a higher potential ceiling (such as the dual blockbuster simultaneous successes of the DS and Wii) while providing more financial security. After all, unlike Microsoft or Sony (though Sony's other businesses have been struggling as of late), should Nintendo rely entirely on one console to achieve widespread adoption it has little to fall back on should said console flop.
There is Value to Having Two Lines of Hardware and Nintendo Answers to Shareholders
This is another issue that gamers are largely eager to overlook as they weigh only those things that affect them personally, but Nintendo is a publicly traded company with shareholders who demand results. Regardless of how people currently view their handheld line, dropping it entirely would immediately shock their share values and would essentially shrink their overall value as a hardware manufacturer. The handheld market has always been responsible for a huge portion of Nintendo's value and profits, and regardless of how well the Switch is doing the effect would likely hurt them rather seriously. The potential ceiling would be permanently lower, and I can't imagine shareholders would be happy about it.
Nintendo's Approach to Markets and Price Points
One need only look at Reggie's recent interview about the New 2DS XL to get a peek at Nintendo's philosophy when it comes to providing various markets with variations of their hardware, where he revealed that they look for potential voids in the market that need filling. While many look at the 2DS, the XL size, and now the New 2DS XL and think they're silly or pointless, Nintendo sees little successes and new customers where there might not have been any. They don't introduce each model with the intention that it replace the previous ones, but rather continue to modify their existing hardware to best suit those who weren't entirely happy with what they already had. This allows for a very low entry point in the 2DS, a top notch experience for less money for those who don't care about 3D in the New 2DS XL, and size variations for people who want them to be larger or smaller.
This approach to hardware is important for the following reasons:
1.) The Switch Can Never Fill the Price Point Void of the Handheld Line: This one is rather important that people seem to be overlooking, but Nintendo is targeting two different markets that have long co-existed and still do. The simple truth is that the Switch (or its improved updates) will always feature hardware that makes it impossible to fill the price points of this lesser handheld market, where manufacturing costs are far lower. For the Switch to maintain its appeal it shall have to continue to feature hardware that prices it out of the range of those in the handheld market, and so they'd be losing coverage whereas they previously were largely profiting from two different markets that were not prohibitively competitive with one another.
2.) Size Variations are Important to Nintendo: While the Switch is portable, it is certainly too large to be considered a true "Handheld". This kind of fit-in-the-pocket portability is important to many people, which is why they recently introduced the much thinner and sleeker looking New 2DS XL. While I've no doubt we'll eventually see a "Switch Mini" of some sort and this Mini line may in fact come to replace the 3DS line as Nintendo's new handheld, it will inevitably be significantly weaker than their best offering as a result of space economy. If they can avoid it, then, Nintendo would likely prefer to continue providing two different platforms of different size and capabilities to target a wider number of consumers.
Given Nintendo's history, then, they've certainly never showed signs of being content with just one primary offering, as it simply doesn't cast as wide of a net as their more varied offerings have thus far.
The Handheld Line is Less Expensive to Support
This one doesn't seem to come up very often as people tend to believe that if there was no handheld line that these games would all instead be receiving console-level releases, but this simply isn't true as handheld games cost far, far less to produce, and are far faster to make.
The recent 2D Metroid is a good example, which (were it a Switch release) would have been justifiably criticized for primitive visuals and such, but as a 3DS release they were able to provide what appears to be an excellent game by outsourcing at low costs to an outside developer. Metroid Prime, meanwhile, is being handhled in-house and will likely cost Nintendo a small fortune in comparison while being far more difficult to produce a quality title. In the end, when accounting for production costs I wouldn't be surprised if the upcoming 2D Metroid earns similar to greater net profits as a low-risk project than the high-risk Metroid Prime, even if Prime sells very well.
On average, it seems quite possible that the cost-to-profit ratio of their $40 handheld games is generally higher than their $60 console offerings, but they're far less risky and can be produced with less effort. It's simply too safe and profitable a market for Nintendo to abandon in favor of shifting almost exclusively to the more expensive and difficult AAA market.
The Handheld Line is Important for Marketing
This may seem odd, but the handheld line and price gap between it and the Switch are almost completely responsible for the legitimacy of the Switch's claim to being a "hybrid" as opposed to merely a handheld. In the minds of gamers and Nintendo's marketing team (who have gone to serious lengths to remind everyone to refer to it as a portable console and not a handheld), the continued existence of the 3DS line provides clear proof of this distinction, whereas without it one would be hard pressed to view Nintendo's Switch as something other than an oversized handheld.
Likewise, it still provides a convenience of portability that the Switch is too large to manage, which allows them to target more casual gamers and kids who like to carry such things in their pockets. Given the comparative ease of providing a library for a handheld over a console, Nintendo can continue to promote both side-by-side and, in doing so, enhance the overall look and capabilities of the Switch via the comparison. This is certainly the strategy they've adopted thus far.
It's Very Likely a 3DS Successor/Improvement is Already Designed
If there's one thing one can always be certain of, it's that Nintendo is currently working on a new portable model/successor for their handheld line. Heading into the launch of the Switch, though, they had only one platform that was performing comparatively well, and that was the 3DS. As such, they really packed the 3DS's upcoming game release schedule to guarantee they had it to fall back on should the Switch fail. Simultaneous to that, of course, they must also have been planning some successor to the 3DS, especially as there was a chance it would be their only remaining hardware line that was selling well.
At this point it's been well over half a decade since the 3DS launched and a couple of years since the New 3DS, so there's virtually no chance that there isn't some follow up handheld just about ready to go. Whether or not they manufacture and sell it remains to be seen, but we can be sure that they've already dedicated the time and money to designing a new unannounced handheld/model that may still be ahead of us should Nintendo feel they're able to continue their handheld line without destroying the Switch's chances.
A Handheld Line Need Not Prohibit Ports
One of the prime motivations people have for seeing the 3DS line die is that they want to see 3DS games on the Switch. While I've already mentioned that we wouldn't see much of an increase of console-quality 1st Party Titles (it's not as if the same resources and teams making these simpler 3DS games could also produce AAA games), there's no reason Nintendo couldn't provide direct or improved ports from the 3DS to the Switch if they feel it's something Switch owners would want badly enough.
The question is just how reliant their handheld line is on having platform exclusives, but really they needn't completely share their libraries; while it may irritate some who have only one or the other, there would be diminishing returns the more crucial exclusives they port over. This is to say that Nintendo can throw the Switch some bones and give them some highly desired ports, but still also have the occasional system-selling handheld exclusives that wouldn't hurt the Switch's numbers while providing incentive for buying the 3DS. I wouldn't be surprised if they also looked into a sort of timed-exlusive approach as well, bringing some 3DS exclusives over to the Switch after a year or two. Either way, we've already seen that Pokemon will be releasing platform exclusives to both, so that may just become the practice going forward.
Suffice it to say, it's definitely possible for Nintendo to navigate their way through the handling of platform exclusives between both without rupturing their relationship with fans and consumers, just as they have done for 30 years now.
Recent Reports and Game Launch Schedule Doesn't Point to Imminent Handheld Exit
Looking at the upcoming schedule, the 3DS is rather stuffed with releases over the next year and a half. This could certainly have been a safety precaution by Nintendo to assure that they'd have a healthy platform regardless of how the Switch turned out, but Reggie's recent statement that they'll be supporting it beyond 2018 and the fairly strong sales it is continuing to manage suggest that it's not going anywhere any time soon.
Concluding Thoughts
Overall then, I think there are more than enough reasons to believe that Nintendo will do it's damndest to maintain two platforms, one being a handheld and one a "console" (that claim of the latter being very much reliant on the existence of the former), for as long as it can. While gamers who like the Switch may feel they're losing out as a result of the handheld's existence, it simply yields too many benefits to Nintendo to justify dropping it and putting all their eggs in the Switch's basket unless the markets absolutely force them to. It's certainly possible that it will do so and Nintendo will become a one platform company, or perhaps it will provide a successor or allow a future Switch Mini to fill that void, but we certainly shouldn't assume as much for now.
In the end, the existence of the 3DS and subsequent handhelds (should they exist) really doesn't have much of a negative impact on the Switch, and instead I'd argue (against my initial suspicions) that it's actually of benefit overall to said console. After all, it's the successes of the inexpensive handheld games that have often allowed Nintendo to absorb the losses from many of their underselling AAA titles over the past few decades, and it allows them to take an experimental approach to games and hardware while being assured that rejection does not mean destitution. For those reasons I am absolutely certain that their line of handhelds have been positively crucial in sustaining their presence in the hardware market, and I have to imagine Nintendo recognizes as much as well.
For those reasons, then, we really shouldn't assume that Nintendo will be phasing this out. Instead, it's likely Nintendo is taking a wait-and-see approach as they try their hardest to justify the continued existence of both platforms, with dropping one being a highly undesirable possibility that they'll only entertain if forced to by their consumers. The handheld market is a thirty year old safety net that I can't imagine Nintendo is eager to lose.
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