|These are Qualcomm chips, but are comparable to other ARM-based chips.|
These commenters just miss the point completely. Let me walk it through so it's perfectly clear. It's also important to note that in this context, the smartphone technology I'm talking about also applies to tablets and to connected TVs (that is, boxes that connect to a TV, like Apple TV or Google TV or Roku or Tivo, or TVs with built-in Internet and other capabilities). The same basic chip technology (mostly ARM-based, though Intel is trying hard to get into this area)
The first place to start is by comparing the current graphics technology. The latest smartphones with the best graphics are about equal to a Wii, or somewhat better, in terms of their ability to display polygons and colors at various resolutions. (The Wii handles around 22 million triangles per second, or around 16 million polygons per second, from the info I could find.)
You can see that the latest smartphone, the Galaxy S, is clearly better than a Wii but still not up to PS3/Xbox 360 territory. The iPhone 5 will likely use the A5 dual core chip, which should be about the same power range.
Smartphone technology is currently introducing new generations of CPU and GPU chips every year, with quad-core chips coming in 2012. Graphics performance has been improving at anywhere from 3x to 9x with each generation; the A5 was rated at a 5x to 9x improvement over the A4, for instance. Conservatively we can expect a 3x jump in performance every year with smartphones. Why is this happening? The intense competition in the smartphone market, and the sheer size of the smartphone market (measured in hundreds of millions of units per year; Android alone is activating nearly 600,000 units each day.) Massive volume helps drive down hardware costs, and encourages huge R&D and manufacturing investments to keep up with competitors.
At this rate, clearly smartphone technology will be exceeding the current consoles in the next year or two. And it won't stop there. Yes, we can probably expect new consoles beginning with the Wii U in 2012. Note, though, that Nintendo is on record as saying that the Wii U will be comparable to the PS3 and Xbox 360 in terms of graphic performance, perhaps a little better. Microsoft and Sony may introduce a new generation of consoles in 2013, which will probably offer a 5x improvement over the current generation if the past console history is any gauge. It's not at all clear whether they'll really be able to offer that much of a graphics advance, given the enormous price pressure they are already under, which will only get worse. Where's the price pressure coming from? That huge volume of smartphones is not only improving in performance, they are driving the price down even faster. Smartphone hardware is small, and inexpensive, and low in power consumption. Next-gen consoles won't be able to get away with $699 price points, or even $499. Not and sell a huge number of units... and the best case they can hope for is to sell, say, a couple of million units per month. Which would put them at about 1/10 the level of smartphone sales, or maybe less by that time. That's a race the consoles can't win.
What about output? Smartphones are currently outputting full 1080p graphics; some even have HDMI plugs so you can push the output to your TV. Apple's got their AirPlay, which allows you to run your smartphone display through your Apple TV to your TV set. It's pretty clear that wired or wireless output from smartphones to your HDTV is going to be a standard feature of smartphones going forward. Which means you can either use your smartphone as a controller, or connect another controller to it, and see the output on your TV. (You can also have a second display in your hand, which offers many game design possibilities.)
Let's talk about controls. The big knock on smartphone games is that a touchscreen as your only controller is too limited to allow many of the more popular console games, such as first-person shooters. Certainly the screen is pretty small, and taking up space on it to control the game action makes it worse. The problem is much less on a tablet, but using a touchscreen just is not as effective as an Xbox controller.
There's no reason, though, that you can't have a Bluetooth controller that looks exactly like your favorite console controller, with all of the same buttons and analog controls, that works with your smartphone or tablet. Then you can easily handle any of the console games.
Ah, you say, but console games just aren't available on smartphones, except maybe in lame dumbed-down ports that aren't much like the original. True enough... but how long do you think that will remain the case as the smartphone market grows at 10 times the rate of the console market, and the graphics capability catches up and then passes consoles? Not long, as I assure you the third-party publishers know how to run sales projections.
Smartphones (and their cousins, the tablets and the connected TVs) will be dominating the family room and leaving the current consoles in the dust. It's possible that Sony and Microsoft can see this coming and become part of the revolution, adopting the new business models. It's already happening, as the consoles are being used to stream Netflix, and Sony and Microsoft are beginning to allow free-to-play games to appear. Microsoft will be attempting to connect their Windows Phone 7 audience to the Xbox via Xbox Live; Sony has been embracing Android phones with the Experia Play. Nintendo, sadly, is still pretending that none of this mobile stuff matters at all to them. I expect they'll change that tune at some point; there are already signs of a thaw in some of their public statements.
The bus is leaving, console makers. Be on it, or be under it. Your choice.