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"Now, by a show of hands, which of you developers out there are going to want to make a game for the 3DS or PS Vita when you could be hitting an installed base roughly one kajillion times bigger? I'll give you a minute to think."

I don't even need a minute to get the right answer.
Phones are bought for several features, including playing cheap games.
Portable are bought for several features but first and foremost for playing games.
And no one would pay 30-40$ for a game on the phone.
WTF????
Without dedicated handhelds, the phones wouldn't have the cheap handheld and console ports, so without handhelds the market would collapse sooner or later.