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Soundwave said:

It does affect their handhelds, though not to the same degree because handhelds is a market with traditionally very different demographics that have traditionally favored Nintendo. 

Such as people don't need as many handheld games per year, handhelds have a lower software attach rate because people use it as a situational product (ie: when I travel on an airplane, that's when I play my DS or whatever). 

Nintendo still thinks the console business should be this basically: 

Their handheld business still performs well despite the crushing march of Smartphones though.

They have the ability to get things right, they just aren't doing it right now with Wii U.