Apple released a stellar Q3 earnings report today. Virtually every product the company makes sold significantly better than last year and even the Mac, which had a relatively lackluster growth rate of 14%, did quite well. One device, though, continues on its slow downwards spiral: the iPod. Once upon a time, Apple easily sold 22 million of its music players during the holiday quarter. During the traditionally slower third quarter, Apple also still sold 10.2 million and just a year ago, the number was still 9.4 million. This year, though, iPod sales were down 20% from last year with “just” 7.54 million units sold – the fastest year-to-year decline we’ve seen for the iPod yet.

While Apple continues to update the iPod product line, there is clearly less and less demand for stand-alone music players out there.

Sadly, though, Apple doesn’t break out sales of the different iPod variations it offers. I wouldn’t be surprised, for example, if iPod classics, shuffles and nanos were responsible for most of the decline, while the more PDA-like Internet-enabled iPod touch was actually holding steady or even growing.