The hardware in an iPhone really isn't that important as long as the interface is responsive. Apple has consistently made choices that ensure that performance can be squeezed out of slower hardware. These include restrictions on iOS development (less abstraction in interface elements because of limited aspect ratios, restrictions on background processes and aggressive memory management) and hardware acceleration and optimization that comes from very limited hardware profiles. That's why an iPhone 4, with it's single 800mhz core, in most instances feels as fast as the dual core, higher-clocked Android phones that have come out since its introduction.

"The 3GS sold fantastically for the first 6 months or so but it was the Q1/Q2 2010 time-frame where Android phones really took off in part because they simply had better hardware."

That isn't borne out in sales numbers. Apple sales continued to grow during Q1/Q2 2010, and in Q2 2010 Apple sold more iPhones than any previous quarter, even with the (very publicly) impending launch of the iPhone 4. Android sales were also growing rapidly during that time, and that is the period where Android unit sales passed up iPhone unit sales. However, that is more likely due to the availability of competitive Android phones on all the rival networks (iPhone was still AT&T only at that point) during the time when smartphones hit mass popularity.

http://www.zdnet.com/blog/hardware/apple-q22010-financial-re...