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Indeed Nintendo is #3 in sales, but not in profits. I believe they are still more profitable than the other two.
And as for why they have slipped in popularity... I think it's because they demand such control of the games released on their system. As a company, they micromanage everything. Hence developers don't like working with them as much as they do with other companies that give them more freedom (and more money--Nintendo is very stingy).
However, I think Nintendo is still making some of the best games anywhere. Metroid Prime and the new Zelda are both amazing, and games like Pikmin & Animal Crossing show that they're still innovative... Just a little out of touch.
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