steel alloy antenna acting as frame
custom A4 chip
gyroscope
camera backslide illumination sensor
engineered glass and retina display
This seems like the biggest hardware upgrade to the iPhone to date. I think people will respond by making it a record-selling iPhone.
Most of these hardware innovations translate directly to new/enhanced user experiences. And competitors like Google don't build phones - they build software. They are limited to what phone manufacturers (experts in phones - not software) can develop technologically.
This is not to say Android won't have greater market share - I just believe Apple realizes Google as a threat, and now heading in a direction that will be tricky for them to follow.
http://en.wikipedia.org/wiki/Materials_science
Do you really think a company like Apple doesn't have any materials engineers? I don't know what the ratio is of the materials they develop in-house compared to the rights they buy from smaller research companies or institutions, but materials science is definitely a field Apple knows a lot about.
Edit: not that I disagree with you, but it should be noted that the focus of this keynote was hardware in part because the software had already been announced