It's little secret that Apple's (AAPL -0.14%) iPod Touch doesn't sell in significant quantities; it's just one of the many products that contribute to its "Other" products line item, which -- in total -- generated just over $11 billion in revenue during fiscal year 2016.
Nevertheless, the iPod is still a product that Apple should keep in its lineup as a "gateway" to the iOS software ecosystem (particularly for younger users).
The iPod was last updated in the summer of 2015, keeping the same basic form factor but significantly upgrading the cameras as well as the technology inside the device. Although I would like to see Apple update it this year, I doubt that'll happen. That said, I think the iPod will be ripe for an update next year. Here's why -- and how.
The A8 chip is getting quite slow
The current iPod Touch is powered by the A8 processor. Two years ago, this was a rather fast mobile chip, but Apple's chip teams have advanced the company's chip designs rather quickly over the last several years with the A9 and A10 Fusion.
And, this year, I'm expecting a rather substantial boost in performance from the A11 Fusion chip.
It's important for Apple to keep all the iOS devices that it sells modern in terms of processing power so that the average performance level of the iOS device installed base remains relatively high. The higher it is, the more aggressive that iOS app developers can be in bringing rich features to their apps, which need to run well on all "modern" iOS device. And, to be blunt, faster processors can make everyday tasks, such as surfing the web, simply better.
The A8 processor significantly lags both the A9 and, especially, the A10 Fusion chips in both CPU and graphics capabilities, and the gap is only set to widen when the A11 Fusion arrives inside of this year's iPhone models.
At the very least, Apple ought to give the iPod Touch a new processor as soon as possible. If, at some point during the first half of next year, Apple endows the iPod Touch with the A10 Fusion chip that powers the iPhone 7 and iPhone 7 Plus, then that'd be quite a nice boost.
Updated storage tiers
Another area that Apple can improve with an updated iPod Touch could be the storage tiers. Right now, Apple offers the iPod Touch in variants with 16, 32, 64, and 128 GB of storage at $199, $249, $299, and $399, respectively.
For an updated iPod Touch, it might make sense to move to 32, 64, and 128 GB storage tiers at the $199, $249, and $299 price points to improve the value proposition at each price point.
Improved cameras, too
Finally, it could make sense for Apple to improve the camera subsystems on an updated iPod Touch, too. I'd expect it to lift the cameras from the iPhone 6s for such a device -- a 5-megapixel front-facing camera and a 12-megapixel rear-facing camera.
Those updated camera components, coupled with the much-improved image signal processor on the A10 Fusion chip, could lead to dramatically better photo and video image quality for the updated iPod Touch compared to the current model.