Recently concerns about a slow in iPod demand as well as lower margins on the devices have resurfaced. While numbers out of Apple indicate that customers are indeed migrating towards the cheaper models, and increased demand pushes up the cost of flash memory, The iPod as a product is expected to continue doing very well.

According to the latest Research and Markets report, global demand for digital music players remains strong. Worldwide shipments for flash and hard drive based players reached 182 million units in 2006, up 42 per cent on 2005. It is expected that newer generations of flash-based players, as well as growing broadband access and the increasing availability of content online, will drive future market growth.
While it is undoubtedly true that the iPod is a mature product that has already made its way to customers, many of these update so often, especially when new models are introduced. Apple's next generation of iPods is expected to be a significant step forward and the leaked information about the new version of the nano attests to that. Analysts expect shipments of video-enabled players to outpace those of music-only devices by 2008 and Apple is well ahead to the curve, with everything except the shuffle now being able to play video.

While recent jumps in flash prices will erode Apple's margins on iPods, it will not be by much and the company's healthy margins will let it pull through. Though Apple does not usually raise prices, preferring to keep them stable, it is quite possible for the company to repeat what they did with the iMac where prices were altered but at the same time there was a significant shift in the hardware, which made the change easier to accept.
Reports of the next generation of iPods mention radical changes across all models, even the Shuffle, and from what has been seen of the nano, these changes will indeed be significant.

The iPod continues to be a great product, with plenty of life left, but even if it were to die, Apple already has the next great product ready in the iPhone.