A large percentage iPhone users don’t buy it for it's Smartphone functionality, they get it for it's cool factor. Doesn't matter how feature rich, or powerful android becomes, Apple will still have enough people to buy their products.
When iPhone first came out, Nokia (on Symbian platform) already had a huge application base (several times more than the current android app base) with far better handsets, but still Apple managed to thrive. As Tangent said, apple fans are like a religious cult, I don’t think Android can pose a significant threat to Apple's popularity, not anytime soon at least.
P.S: iPhone is very popular indeed, but they are not the largest smartphone manufacturer (Nokia has more than twice Apples's market share, even RIM is larger than Apple).
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