People have been calling for the death of game consoles ever since the PC became a popular way to play games. Despite the rise of PC's as capable gaming machines, the console market persevered. Now the same thing is happening again with the rise of mobile devices (smartphones and tablets).
But it seems everyone is missing a rather large point:
Video game systems have always been niche products. (This is especially true when talking about handhelds)
The only game systems to ever sell over 100 million units were the PS2 and the DS. Now everyone thinks that if a game system sells less than that, it's considered a failure. They'll use that excuse to say "well there is no need for game consoles anymore, they can't even sell more than the PS2." Which is, of course, a very strange proposition. Since when did "100 million sold" become the standard for success? Most game systems barely sold over 60 million, yet they were still considered successful.
And now we come to smartphones... A phone is a necessity in today's world; everyone has one. That's why they get more developer support. Apple cracked open a huge window of opportunity for game developers and consumers, with the invention of the iPhone and App Store. Now everyone is rushing to capture that market. We've since seen competition from Google and Microsoft, making the mobile gaming market even bigger. But eventually that bubble might burst. Oversaturation of the market will cause people to be overwhelmed with the amount of choices available (too many games, not enough time to play them).
Mobile games offer a nice, quick diversion for people living a hectic lifestyle, but the games will never match the complexity of a playing a game in front of a large TV screen. For one thing, these mobile devices don't have any buttons. Now I know some will say "but then developers can customize their own button layouts", which is good. But then there's a lack of tactile input, which is essential for certain games (shooters, platformers, fighting games, action games, etc.).
As for the actual "smartphones vs handhelds" debate, it's rather pointless to argue about it. We're comparing a phone (which pretty much everyone needs these days), to a handheld gaming system (which is essentially a toy). As I stated above, game systems have always been niche products.
People could use that same argument for the "PC vs console" debate.
Why buy a game console when PC's can do all that and more?
Yet here we are, PC's and console coexisting peacefully. Why can't mobile devices and handhelds also coexist?