After rumors swirled that Walmart (WMT) was going to halve the price on the Apple (APPL) 3GS 16GB iPhone, it has happened. Walmart now sells the 16GB iPhone 3GS for $97 with a two-year contract or an eligible upgrade.

This move can be viewed several ways. The first is that the 16GB iPhone will become the entry-level model when Apple introduces the 4G iPhone (rumored to launch in the next month). The second is that Walmart is trying to boost its sales figures by dropping the price on the wildly popular phone.

Sanford C. Bernstein analyst Toni Sacconaghi looked at Apple Inc.'s (NASDAQ: AAPL) latest sales numbers and thinks that the company may have an iPhone inventory problem:

We believe the data points to a significant amount of iPhone channel inventory ... This is negative in two ways: (1) it indicates end-user demand for iPhone is lower than many investors may think based on Apple's sales figure; and (2) it points to slower iPhone sales in the current quarter, since much of this inventory is likely to be drawn down.

Check out News.com's coverage of the report for more details and insight.

Apple's stock has been hit hard of late, and this latest inventory report underscores one of the reasons I wouldn't buy Apple stock (I wouldn't short it either): The company is 100% dependent on its continued ability to innovate and stay ahead of the competition with each new product introduction. Even a blockbuster hit can only carry the company for so long.

Any investment in Apple is essentially a bet on the company's ability to continue being an innovator. Call me crazy but if I'm going to pay 6+ times book and 25 times earnings, I'd prefer a strong moat that doesn't require continued brilliance.