3DS is definitely doing quite well. I think a dedicated handheld with a reasonably cheaper price point than most big name powerful smartphones definitely has a place in the market. The 3DS retails at around $150 and the more expensive smartphones are several times that price. So hardware-wise 3DS should do okay at least.
Unfortunately software is where the dedicated handheld is taking a hit because of all the free games on the app stores. But at the end of the day quality software will stand out over free crap even if it comes for a premium price and there will always be people who want quality. I think a slightly lower price point for games (nothing above $30) with downloadable versions costing $5 less or so would do the handheld market a lot of good.
