Scott Forstall, Tim Cook at WWDC 2012

Apple is planning to start production of the iWatch in multiple screen sizes during the fourth quarter of 2014, Christopher Caso, an analyst with Susquehanna Financial Group, said in a note to investors on Tuesday.

Caso is reiterating what a lot of analysts and reports have already said, adding that two versions of the iWatch are likely and that Apple is planning production targets of five million to six million units in the fourth quarter of 2014. Caso adds one other interesting bit – the iWatch could essentially replace the iPod, which may make a lot of sense…

We, however, aren’t assuming a material impact to earnings from iWatch, since the iWatch would essentially replace the iPod in the consumer portion of AAPL’s product lineup. While we don’t expect AAPL to discontinue iPod for some time, we also don’t expect an iPod refresh this year, and believe iPod could post Y/Y unit declines as a result as consumers purchasing iWatch as a substitute.

Caso notes he doesn’t expect Apple to cancel out the iPod line just yet, but doesn’t expect the Cupertino-based company to release a new version in 2014. As a result, the iPod line may see a significant decline in sales, but it would be offset by presumably positive sales of the iWatch.

Tim Cook, CEO of Apple, has already noted that the iPod business is declining: “The way we look at it, our business is a sell-through point of view less iPod — all of us have known for some time that iPod is a declining business.” As more people are buying iPhones to get their iOS fix, the iPod has become less of a hot seller like it once was.

The iWatch and iPhone will presumably take care of all users’ portable iOS needs, so phasing out the iPod over a long period of time may make sense.

[Barrons via MacRumors]