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Third possibility: update with lower price and an A6.

I think the third possibility, which you overlooked, is the winner.

An A6 in 2014 won't cut it, at all. It's a 2 year-old chip, I'll say they would at least go with the A7 as the 64 bit would be the future, and A8 would probably debut in the new iPhone 6 this year.

I'm ok if the price remains as it is. If it's reduced, even better. :)
 
A lot of people like me prefer the ipod touch as a music player over the ipad bcause of it's portability. As long there's a market for it, I don't think they'll kill it.
 
I have an iPod touch 4th gen 64Gb model from 2010 and its an ok music and movie player but really too slow for much else...if it doesn't keep up with current chip tech, I wouldn't get another one as it wouldn't do anything else better than my 4th gen model.
 
I think there's still life in the Touch yet, I suspect like many others the Touch was my 'gateway drug' into the iOS ecosystem, as a result I now have an iPhone 5 and an iPad Mini. I still have a 5th gen 32Gb Touch which is great for surfing in bed, games and music without hammering the battery in my iPhone 5. As long as the price point stays affordable it should still sell well. I hope it continues to be produced and updated.
 
I just wish they made a 128gb version and then i could finally move my classic to an iPod touch. I love having the big album art and i hate that i need to charge my old iPod via dock connector.
 
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