Apple needs Sharp even after having capacity at Samsung. This isn't an either or. Samsung will over time be phased out though as the battle between them rages on. The iPhone was remarkable both for it's innovation as well as it's look and feel. Even after multiple lawsuits, etc., Apple isn't ultimately going to be able to protect the look and feel of of the iPhone and maintain the "divide." There are too many subjective components. On the other hand, innovation compared to every other phone maker at all times is also going to be impossible, especially when other OEMs copy the look and feel as much as they can get away with and throw lots of meaningless "features" on a phone. We are seeing this with the tablet market even now. Apple is taking the two-pronged approach by trying to do both. We all want the latter option, but the effort, talent, creativity, etc. required is amazing, and I don't foresee Apple dropping the lawsuits any time soon. It is, to them, a necessary evil.
EDIT: There is plenty of innovation and addition of useful features to phones from other OEMs as well, to be sure. Unfortunately, a tendency to bolster feature lists by adding extra "stuff" is also common. The point stands however that Apple has to battle the quickly expanding feature space.