Wedbush analyst Michael Pachter has climbed back up on his soap box again with some loaded commentary on the future and viability of the handheld market.

In a Gametrailers ‘Pach Attack’ segment, he labels the PSP2 as ‘dead on arrival.’ Further, he feels Apple’s growing dominance with the iPod Touch will continue to gnaw at Nintendo’s marketshare, pointing to lower software prices as a key momentum driver among budget-conscious parents.

Here’s the full quote:

We’re way approaching saturation on the handheld market. We’re starting to see DS hardware sales crack, I think the ambiguity of the iPod Touch is cutting into the handheld market, I think the PSP is dead on arrival and I think the PSP2 is going to be dead on arrival.

It looks to me like young kids are just as happy playing with an iPod Touch or a Nano. You know, the Touch is cool, it plays games, plays music, they’re going to put a camera in it and you’re going to get all sorts of cool stuff.

The 3DS will prolong the handheld market for the game manufacturers, but ultimately, I think handhelds are in trouble. I really think as the iPod Touch gets more and more powerful, you’re going to see a lot of free games over there.

What’s the difference if you play Tetris on an iPod Touch or on a DS? Well, you pay a buck on the iPod Touch, you pay $20 on the DS. Parents prefer $1 or free software, I think the iPod Touch is going to sell really, really well. So, after the 3DS has had its little rush I think the handhelds will continue to decline.

What’s your take on Pachter’s predictions? Is the traditional handheld market on its way out?

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