I wasn't saying that they would exit the handheld gaming market, I was saying that they were threatened in the handheld hardware market. Theres no reason why their software couldn't continue if they found their hardware situation untenable.
Take a look at this: http://www.vgchartz.com/worldtotals.php?name=&publisher=245&console=DS&genre=&minSales=0&results=50&sort=Total
The biggest thing to note about that list is that the highest selling software titles are the least defensible as genres against equivalent mobile phone games using touch screens. It is only when you go down the list of top selling DS games that you start to see the games which cannot be done adequately on a touch screen start to match or exceed the numbers which can be done as well or better. The games which are threatened are games like Brain Age, Mario Kart, Nintendogs etc or their highest selling software. Games like Zelda may not be threatened nearly as much but then again games like Zelda simply don't sell like their main software titles. The point where the two markets intersect is the core value of the handheld market which is pick up and play, maybe for less than 15 minutes at a time.
The last time Nintendo's own software dominance was threatened was when the industry faced an explosion of new development talent coming in and shifting the balance of talent in the industry. This was when the PS1 came out and it continued to the PS2 but died down with the current generation and the old stalwart publishers have posted large losses ever since. In the current console market Nintendo is safe because the number of new ideas coming out or new paradigms has dwindled and nothing really looks threatening at all. However in the handheld market there has been an explosion in the number of talented independant developers and an explosion in the number of new ideas flooding the market. As Nintendo makes the likes of EA look like an old bull put out to pasture in terms of agility, smaller developers can and will make Nintendo look like the same.
If you take a look back at the kind of games which launched the massive Gameboy handheld back in the day, which game stands out? Tetris. The kind of simple, addictive pick up and play kind of gameplay of Tetris is exactly the same core value of the major games you see on iOS and other mobile phone game stores. Only this time the distribution cost is a fraction of what a developer would have to pay to release a game on the DS with the marketing costs also being substantially reduced because the phone devices are also communication devices and word of mouth is a couple of clicks away. The threat here isn't 'better than Nintendo' its 'good enough but more convenient'. The MP3 destroyed the CD with poorer music quality and convenience coupled with a lower price. Maybe those cell phone games are poorer quality but they are convenient and they come with a lower price. MP3 quality didn't stay poor forever, as game quality on the online mobile phone stores has improved likewise.
Tease.
