How does Apple handle a dead product? It usually just gets deleted with little fanfare. Some fans complain, but pretty soon it's just history and everyone moves on. One has to think the iPod is getting near this point, after the release of Apple's latest figures. But the difference is, if Apple deletes iPod, it deletes an entire product category Apple virtually invented.
Yes, I know there were other MP3 players, but they were rubbish. Although some models by other manufacturers were, feature for feature, demonstrably 'better' than iPods, they simply failed to impact the market in any meaningful way. iPods almost immediately grabbed the cool factor, and only relinquished it to iPhone (or, to smartphones). But iPod was hugely significant to Apple - it was the start of Apple becoming a household brand, and the start of Apple making a portable device loads of people wanted.
I guess there are three possible scenarios for the demise of iPod: Apple simply sells off existing iPods and doesn't make any more. Or, Apple keeps a couple of iPod lines going. Finally, Apple might innovate iPod to the point it's worth having again, alongside its other lines.
This third seems more likely to me. I think that's why Apple has been exploring and acquiring GPS and sensor technologies and I think that's where rumours of an Apple watch (or, at least, a wearable device) have been persistent. I honestly have no inside information to back this up, but Apple has been a pioneer in miniaturisation. Macs and iPads keep losing weight while adding features. I reckon (as I've said before) something may emerge in this space that plays your music, sure, and lets you interact with your iPhone, but that also works in the fitness space with GPS and monitoring and all that, except in a really easy-to-use manner that doesn't require hours of fiddling around. And I think it will just be a new type of iPod, rather than a new device category per se.
But I've played around with a couple of devices like this and they've been pigs to use. Hardly a representative cross section, and I'm sure (I hope, anyway) there are some good ones, but Apple excels at usability. As a device that acts as a remote for the iPhone, since that's going to be in your pocket or bag anyway, and that's wearable and which has various sensors built in, this scenario makes the most sense to me. Apple has already been messing with wearable tech anyway, with various iPod shuffles having clips and whatnot.