Apple has the technology headroom to keep making more powerful iphones for several more generations... but will it reach a point where people don't need a more powerful phone? (that they don't get any benefit from it, so that power is not utilized). I would have thought they were more powerful than a phone needs to be already, but obviously not! One view is that they are still replacing desktops, suggesting users will value increases in power until they are as powerful as a desktop. Of course, gaming use is unlimited, but I'm not sure that's a key usage.
I would expect something like the Apple watch is essential for Apple, because that small form factor has lots of runway, as each increase in power would be a benefit to users.
Why wouldn't gaming be a key usage? On iPhone alone it is a multi-billion dollar industry. I think gaming could be one of the big driving forces moving forward once they get serious about Apple TV. Give it a few years for the processing to catch up to today's consoles and you no longer need an Xbox/Playstation.
And yet, people buy SSDs even though they could get more memory in a HDD. Because they value speed over capacity.
"The Innovator's Dilemma" traces back the disk drive industry, and in each generation, people choose smaller memory capacity, for the sake of a smaller package (there used to be 8 inch drives, for example). The theoretical idea is that once users' need for performance is satisfied (it's "good enough"), they turn their attention to other issues - such as price, convenience/ease-of-use, customization etc.
It has happened with desktops: that's what caused the brief "netbook" popularity, and what made smartphones successful. Desktops had overshot what was needed for many tasks (browsing, email); but the smaller devices were just becoming powerful enough to manage. So although desktops were more powerful, that extra power didn't matter to many users.
The underlying idea is twofold: (1) all technologies improve over time, as engineers find better ways to do things (Moore's law is just one example); (2) what users demand also increases over time, but at a slower rate
Therefore, if you start with new approach that really struggles with many tasks, eventually it will become powerful enough for what users need; during the same period, the old technology started off powerful enough, and became even more powerful - but users didn't care, because it was more than they needed (or, at least, they didn't want it as much as they wanted other qualities, like convenience etc).
They are finding it easier to sell skinny phones and long battery life than CPU speed. Phones could be quite a bit more powerful if they were as thick and heavy as they used to be.
The Google Project Tango prototype phone is chunky but has lots of CPU.
I would expect something like the Apple watch is essential for Apple, because that small form factor has lots of runway, as each increase in power would be a benefit to users.