Sean, don't you know that because Apple is not "innovating", it is in real trouble of losing customers to Samsung and other phone makers.
That notion alone trumps any and all "facts" to the contrary. C'mon man, get with the program...
I have to wonder, how much more can we really 'innovate' on smart phones without resorting to gimmicks (with any phone)?
Speaking assistant responding to voice commands (Siri/Google Now)? Check
High definition camera/video recorder? Check
Ability to do pretty much ANYTHING with your phone? Check
The only room for innovation that I really see as being plausible in the future would be either in bio-metrics, or really being able to use the phone as a mobile payment system. Android tried to get the party started with Google Wallet, but hasn't seen widespread adoption yet (a shame, because I like the idea). Maybe if Apple joins the game, it will become more commonplace on both platforms.
Maybe expanding the uses of NFC in a phone could have room for more innovation. Again, maybe Apple can spur more widespread adoption if they incorporate it into their phone.
I think the bigger thing to focus on (in addition to the above) is polishing the OS and shoring up weak areas as such. Many of the suggestions in the 'what do you want to see in iOS7?' threads we have here are a good start, like actionable notifications, easier access to common toggles, and expansion of cross app communications - all of which are strengths of Android but a big weakness of iOS. Shore these up, and it will be in a much better position for more radical changes down the road, perhaps.
Just my two cents. And this is of course ignoring any future rumored products such as watches, TV's, etc.