Apple's challenge is that they have been iterating by adding features to the iPod for more than a decade. Adding a phone, and touch, and software and a bigger screen have worked because they have found a way to do so profitably and at scale. They sold because they provided new kinds of uses.
But in the end, it's the electronics industry and the efficiency of supply and manufacturing pipelines is increasing faster than Apple's demand - i.e. the companies which make up the pipeline are growing their businesses beyond meeting Apple's demands and Apple's competitors are able to utilize that capacity to make their operations more efficient.
The seed change is that Apple is increasingly marketing their products on specifications rather than differences of kind. Retina was the first example of "now with more of what we already have." Adding a quad-core processor is just a faster horse not an airplane.