While DS the top selling system in Japanese history; it is already up there in North America and Europe as well. The DS sales stand at 54 million US, 32.5 million Japan, and 59 million in EMEA.
Source
There are a few interesting market trends in Japan though: while the DS was massively successful there, the PSP was very successful there too. Japan has sold 52 million DS and PSP units. DS and PSP sales alone this generation have sold more units than all of the consoles sold in any prior generation; handheld systems dominate in Japan.
More interesting though is the mobile market in Japan. Japan is the world's most advanced mobile phones market (
link). The worldwide mobile games market worldwide was 4.7 billion in 2009 (expected to be 5.6 billion for 2010); while on the rise, only 540 million of those sales were from the US (
link). Most of that revenue was from Japan. DeNA, the top mobile gaming company in Japan alone made 517 million dollars (
link); almost the equivalent of the entire US mobile gaming market.
So if anything; Japan is an example of how a much more advanced mobile market has thrived while the handheld gaming market has also thrived at the same time. This is part of the reason why, in my earlier post, that I feel the rise in mobile gaming on mainstream cell phones has and will actually benefit the acceptance and expansion of the handheld gaming market.
The major point of where the separation occurs is with the hardware. Are you going to talk to people holding a DS-like device up to your head? Probably not ever. The input on a gaming handheld requires a different shape and buttons to that of a cell phone; Nokia, the world's leading mobile phone provider (holding over 40% of the worldwide mobile phones hardware market), was unable to successfully launch such a device in the NA and EMEA markets; although, gaming phones have seen success in Japan - it looks like this is one market trend that is staying in the land of the rising sun.
Feature sets: An example of how a common tech between the two is used differently - Now with 3DS, the bluetooth and wiFi connectivity is being used specifically for gaming applications; while the pioneering began on the DS, it was linked to specific software (ie. Dragon Quest 9's tag mode, which allows unlockables and data exchange when two devices running DQ9 come into contact. The 3DS has taken this feature and made it universal; so such content exchanges can occur for all games owned at all times. The feature set in handheld gaming systems will ensure that they remain a separate market.
The market for mobile phones and handheld gaming consoles are not going to interfere much. The first and most obvious reason is that handheld gaming consoles do a lot of things that mobile phones will never do. We have seen a parallel here before in the form of PCs and Home gaming consoles.