It remains to be seen if the app store model can support games with the kind of production costs a game like Zelda incurs. So far it looks a lot more like flash games for $1.
They could start with porting their existing games like Square Enix and others did. But the question is whether they want their titles to remain exclusive.
I think if they want to remain a giant, they'd continue with what they do and strive for a next breakthrough. Whether they will succeed is another question.
If they give up the exclusivity of their own titles and move on to software-only like Sega (or maybe a combination of their own hardware platform + publishing to other platforms), they might still be great in the industry, but there'd be many alongside them.
Following the Sega path would not be a good idea IMHO.
They would be like you said one game editor among many, wouldn't have control over the platform and loose intimate knowledge of the system games runs on.
And last but not least, they'd loose media coverage and brand power. There are only three big console brand, they get free media coverage when they sneeze while Sega happened to be talk about from time to time, when someone remember they still exists.
Sega had no choice, it reconverting or die. Nintendo don't have to (yet) and I hope they won't. IMHO, it's just typical handwaiving of greedy short-sighted investor that want a higher ROI, now, regardless of what's better for the company. Yeah the mobile game pie is larger then the console one but would the marketshare achievable by Nintendo's game be bigger than on an exclusive console ?
I think the app store can definitely support games that are $20 or $30. Already Square has released several titles approaching $20 in price, and they have been very successful.
Nintendo is leaving money on the table because of NIH (not invented here) syndrome and their shareholders have a right to be disappointed.
Calls for Nintendo to produce for iOS sound like those criticisms of Apple in the 90s where pundits suggest they ship Windows machines.
Nintendo is all about their franchises, and millions buy their consoles just to play Zelda or Mario. They'd dilute their brand and cannibalize their console sales if they began producing for iOS.
