During its last conference call, Apple said something very sound: “We expect traditional MP3 players to decline over time as we cannibalize ourselves with iPhone and iPod Touch”. While many companies are afraid of cannibalizing (the sales of) their old products with the new ones, the cold reality is that if you don’t cannibalize yourself, someone else will do it.
It is clear that older iPods (non-Touch) are nearing the end of their life cycle, simply because their main purpose has been fulfilled for a while. Additional storage can’t extend their use much and it’s hard to imagine what features will justify maintaining the price or even raise it.
Yet, they still sell well, even if the trend is downwards. So, when will these products go away? When they start dragging Apple’s overall gross margins down. At that point, they won’t be worth the marketing, support and engineering efforts required to prolong their existence.