Dunno why people bring up PS Vita. Handheld gaming is dead. That thing is an even bigger flop than Wii U. It has sold less units than Wii U in thrice as much time. Only 3DS is somehow surviving (selling well actually) and should be the last handheld console which actually sold well.
I had decided to drop out of the conversation but I hope that I can step back in and fork it here without any problems.
I think it would be a bit premature to pronounce handheld gaming dead. The usual argument is that mobile gaming has eaten away the audience, but the sales data do not back it up. The smartphones did not affect the DS and it turns out that they are not really affecting the 3DS. The DS sales did not fall off a cliff when smartphone gaming shot up like a rocket and the release of smartphones do not affect the sales of the 3DS as a platform at all. You never see even the slightest dip in sales because the iPhone 5 or Galaxy S4 came out. Although the touch generations games like Brain Age did not move units in the same way as with the DS, other games like Animal Crossing: New Leaf seem to have picked them up instead. According to Nintendo, the sales of the 3DS quadrupled the week AC:NL came out[SUP][1][/SUP]. Whenever a new game comes out, the 3DS sales spike. Fire Emblem: Awakening has become the best selling Fire Emblem to date[SUP][2][/SUP] and its release in the UK caused the platforms sales to rise by 50%[SUP][3][/SUP]. As you can see in chart below[SUP][4][/SUP], even after the price drop, the sales would slowly return to the baseline, if not for the consistent releases, until Mario Kart 7 came out, which caused sales to skyrocket.
*www.screwattack.com/sites/default/files/image/images/News/2011/1206/dr_mk7_chart.jpg
Even the Vitas sales were bumped when games came out for it[SUP][5][/SUP][SUP][6][/SUP].
The NPD and Media Create data seems to suggest that overall software sales have dropped a bit, but they do not track digital sales.
Although the mobile and handheld gaming market have a overlap, the mobile market destroying handheld gaming makes as much sense as PC destroying Console and vice-versa.
The reason the Vita has failed to take off even after the price cut is that Sony failed to consistently release titles on the platform to sustain interest in it, unlike the 3DS which had games like Ocarina of Time, Starfox 64, Super Mario 3D Land, Devil Survivor Overclocked and Mario Kart 7.
I'd say that the race to the bottom on mobiles[SUP][7][/SUP] and the rising development costs on PC and Consoles[SUP][8][9][10][/SUP] have ensured that the handheld market will be there for quite some time. If eleventy billion dollars[SUP][citation needed][/SUP] is spent on developing a game, it cannot be expected to recoup costs without being a large blockbuster, something games like Shin Megami Tensei and Virtue's Last Reward are not and (even if controllers are standardized) the mobile audience is not receptive to such games and almost certainly will be unwilling to put down $40 - $50 for them. Nintendo and Sony will most likely not stop making and supporting their handhelds because their games like Tearaway(Vita, hopefully) and Mario Kart 7(3DS) earn them more money than they possibly could make on mobiles. In the end the gamers go where the games are. Once the audience for such games die out, handhelds will.
[1] *twitter.com/gibbogame/status/344857056915894274
[2] Fire Emblem 3DS Sweeps Japan, PS Vita Sales Down - IGN
[3] UK Software Charts: Injustice Gods Among Us Debuts At Number 1 « GamingBolt.com: Video Game News, Reviews, Previews and Blog
[4] Historical Media Create data. Available at m-create.com
[5] Japan chart: Persona 4 revives Vita sales • News • PlayStation Vita • Eurogamer.net
[6] ¡T‚̃‰ƒ“ƒLƒ“ƒO | ƒƒfƒBƒAƒNƒŠƒGƒCƒg
[7] Refers to the fact that on mobiles most games costs range from 0.00 - 4.99 and the increased reliance on things like in app purchases and microtransactions.
[8] *www.develop-online.net/news/43214/Kotick-Rising-next-gen-dev-costs-inevitable
[9] *www.develop-online.net/news/43407/EA-predicts-development-costs-for-PS4-will-rise
[10] The Rise of Costs, the Fall of Gaming | NES - notenoughshaders.com
Edit: So that this post isn't entirely off topic:
*www.nintendo-insider.com/2013/07/01/wii-u-sponsors-itv-4s-tour-de-france-2013-coverage/