My guess is a transition to only iPod touch models with much larger storage capacities. The increase in memory will increase the cost but Apple will likely sell it at price points comparable to what the large capacity ones are now. This would lead to the mentioned decreased margins. Also sales of these would likely be high to help make up for the decreased margins, especially around the holiday shopping time.

Apple is giving away the old touches now with the purchase of a macbook. They also like to announce iPods at the beginning of the fourth quarter to capitalize on the holiday shopping.

This transition seems like one they could be referring to.