Silicon Alley Insider has another interesting chart illustrating what many probably have suspected.  iPod sales aren’t really tapering off, they are just being distributed to iPod touch and iPhones. 

If you look at the iPhone as an iPod (which it is – remember Jobs said it was the best iPod Apple has ever made), Apple’s "Pocket Products" are on a steady upward trajectory.  People are just opting for iPods with higher capabilities and Apple is artificially classifying these products differently.

Additionally, the new iPhone/Touch iPods are higher priced, higher margin devices that have further revenue potential with not only music like other iPods but also Apps.  That is good for Apple.

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