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The console/PC analogy mentioned earlier is perfect for this thread. The fact that PCs have proliferated without obliterating the console market - despite being capable of almost everything a console is - shows that despite all of the convergence going on people still have a want for dedicated gaming hardware. As long as Nintendo can strongly distinguish between their hardware and all of the phones there is no reason why the two markets should not exist at the same time.

 

It also should be remembered that Nintendos largest strength is in its gaming library, however you are correct that their largest weakness is probably their online presence.