It seems to be the common wisdom that
a) Apple is working on producing an Apple-branded cell phone.
b) In any case Apple won't sell many of them because it's not good at selling to the kind of monopolies that run the cellular networks. (Steve Jobs once made a similar comment with respect to set-top cable devices -- Apple could produce a super-Tivo with many other capabilities, but it would have to cell them to the monopolies that run the cable networks -- which he thought wouldn't be wise because Apple's forte is selling to consumers.)
c) People won't buy iPods when cell phone can do the same thing.
d) Therefore, Apple will be in a lot of trouble in a few years.
I am wondering, though, if there is room for something that is more than a music player -- that has better video capabilities than today's high-end iPods and also great gaming capabilities. One rumor is that Apple is working on a device with a main surface that is nearly 100% video display. When you put your thumb near where the scroll wheel is now on today's iPods, the scroll wheel appears on the screen and works just as it does today. For games, different controls could appear, attuned to the needs of the game. If they get a device like that to work really well, I can imagine it being the hottest seller they've ever produced. Seems like it would be hard to get the scroll wheel working "just right". My guess is that it would involve having a circle with a slightly different physical feel than the rest of the surface, but which is still transparent.
The question would then be, is there room for that version of the iPod and a cell phone as separate devices? It seems arguable that the ideal cell phone is a very different device in shape from the ideal iPod. With a cell phone, you really want the tactile response of physical number buttons so you can use it easily without looking. You also want it to be very small. You probably want it to be shaped a lot like the high-end cell phones of today. The imaginary iPod we're considering is completely different. It needs to be large so that you have a more enjoyable display for video and gaming. And it needs to be a flat rectangle. These really seem to be two very different devices.
It's always extremely difficult to predict the future, but my guess is that they doomsayers will be at least somewhat surprised. Certainly a lot of people will have combined cell phone-music players. But I think a lot of people are still going to be buying iPods.
Sorry for the lack of links in the above. I'm just too busy working on Goombah to look them up. Goombah is coming along very nicely, thank you.