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Even if Nintendo's strategy of 4-5 casual games/year from the DS/Wii had held up ...

It's quite frankly a piss drop in a bucket compared to the casual game market on iOS/Android.

4-5 games? Don't make me laugh, mobile gets like 300-400 casual games each year. For free.

What are you supposed to do as Nintendo? Go into the smartphone market and compete head on with Apple for free/zero margin games?

Nintendo cannot compete against that. iOS/Android fight dirty, Nintendo did not know how to react to this, they're used to competing against Sony/MS that largely play by the same rules. 

Sony never did anything crazy like start selling Vita games for $1 a pop, they all played by the same rules. But Apple/Google don't.