You really think an iPod touch in which the A5 chip is replaced with an A6 chip would "further cannibalize iPhone sales?"
How many people do you know with BOTH a current model iPhone and a current model iPod touch (i.e. they didn't get an old version of the latter and then later get their first iteration of the former)? I'll bet not many, because it doesn't happen. You either own one or you own the other. I'd be likely to own both, but I'm an exception, and that's moot because I don't own both.
So, if you're only going to own one, which would Apple rather you own? That's what I mean by sales cannibalization. People who buy iPod touches are likely not people who buy iPhones because an iPhone more or less replaces the need for an iPod touch for basically doing the exact same things, but better and with the ability to make and receive calls, texts, and to use data when there isn't WiFi available.
Apple
sells 30x more iPhones than iPod touches. The iPod touch is not cannibalizing the iPhone to begin with, so why say "further?"
See above. If people are buying iPod touches, they are not buying iPhones. If Apple released an A6, A7, or A8 powered iPod touch, I'd buy it immediately and I know I wouldn't be alone. This could also serve to further stave me off from buying an iPhone. Similarly, people who were thinking of switching to the iPhone from the combination of either Android+iPod touch or dumbphone+iPod touch or Windows 8 Phone+iPod touch now have the alternative to doing so.
I'm not saying that it is a terribly effective cannibalization, and maybe "cannibalization" is a poor choice of words here. Point being is that every iPod touch sale is an iPhone sale that didn't happen because, again, ownership of both (where both models are current) is extremely rare.
And if Apple silently updates the iPod touch by replacing the A5 chip with the A6 chip, perhaps Apple would sell 20x more iPhones than iPod touches, but how would you consider that "cannibalization?"
Again, probably poor choice of words. But yes, I would still consider that a scenario where people that would've otherwise purchased iPhones were given a reason to not do so that otherwise wouldn't exist if they didn't update and/or if they did discontinue it.
If Apple ever would update the iPod line, they would want to update the iPod touch in this way before focusing on the iPod nano.
While I agree with you here, the critical difference is that you assume that they're not going to discontinue the iPod touch without updating it and all signs don't point to that happening.