Cook: Apple doesn't need to make a cheap iPhone to be successful

Apple (NASDAQ: AAPL) CEO Tim Cook said the company's blockbuster holiday quarter proved that the company did not need to make a cheaper iPhone in order to continue to grow its smartphone business. He reiterated that Apple will not make a less expensive iPhone for the sake of making one, and will continue to focus on making great products.

"We've always believed that our role in life is to make the best, not the most," Cook said during an appearance at the Goldman Sachs Technology and Internet Conference. "And sometimes those spheres do intersect where you can make the best and the most, and sometimes they don't." In the calendar fourth quarter, they intersected, Cook said.

Late last month Apple reported a blowout holiday quarter with record sales of 74.5 million iPhones, up from the 39.3 million it sold in the previous quarter and the 51 million it sold in the year-ago period.

According to research firm Strategy Analytics, both Samsung and Apple sold 74.5 million smartphones in the fourth quarter of 2014, tying them for first place for the first time since the fourth quarter of 2011. 

For years, Cook said, investors and analysts argued Apple "had to do something different" and produce a cheaper iPhone to attract customers in China and other emerging markets. Cook said that is a "bunch of bull" and "not true." He acknowledged that Apple's products, including the iPhone 6 and 6 Plus, are expensive, and that Apple's commitment to premium products "doesn't mean everyone can afford one." But he said "everyone wants one."

Cook said that Apple will not chase greater market share via a cheaper iPhone at the expense of sacrificing product quality. "What we don't do is do something that is second rate, or that is only a good product and not a great product, because that is not what Apple stands for and not what we think customers want," he said.

Cook said that Apple stayed true to its approach to the smartphone market and "sort of blocked out the noise," which he said Apple is "pretty good" at doing.

Apple currently faces stiff competition in China, the world's largest smartphone market. In the past year, Chinese smartphone makers like Lenovo (which now owns the Motorola Mobility brand and is the No. 3 smartphone maker), Xiaomi and Huawei have been making inroads with relatively high-end Android phones at lower prices.

Cook said Apple has "always had stiff competition" and that such competition "makes us better." However, he said worrying about competition from companies like Xiaomi "is not what we lose sleep over."

Apple is focused on making great products, he repeated. "We think if we do that well then other things will take care of themselves," Cook said.

Beyond the iPhone, Cook said that the Apple Watch, which the company will produce in April, will be the smart watch for the wearables market like what the iPod was to the MP3 player market. The entry-level Apple Watch will retail at $349, which is more expensive than some smart watches on the market but not exorbitantly so. However, Apple has not disclosed pricing for the more expensive models, including models in 18-karat rose or yellow gold.

Cook noted that Apple wasn't the first to make an MP3 player, but that it improved the user interface and made it simple and easy to use. "I see the smart watch category very much like that," he said.

"There are several things that are called smart watches that are shipping," he said. "Certainly there has been none that has changed the way people live their lives. That's our objective at Apple."

Cook said that the "biggest surprise" customers will experience with the Apple Watch will be the "breadth of what it can do." Cook said the integration with Siri, Apple's digital personal assistant, will increase the watch's utility, and that the watch will know to tap a person on their wrist if they have bene sitting around too long. "Sitting is the new cancer," Cook said.

On Apple Pay, Apple's mobile payments program that launched in October, Cook said adoption is "going faster than I thought it would--much faster, actually." Cook said he thought many merchants would be reluctant to change their point of sale systems during the holiday shopping season, but that the reception has surprised him. In December, he said two out of every three dollars in the U.S. spent through contactless payments were made via Apple Pay.

Cook noted that big merchants support Apple Pay, including Bloomingdale's, Duane Reade, Macy's, McDonald's, Sephora, Staples, Subway, Walgreens and Whole Foods, as well as mom-and-pop bakeries and toy stores. Apple Watch will also work at the over 220,000 merchant locations across the U.S. that have contactless payment enabled.

For more:
- see this Apple page
- see this 9to5Mac article
- see this Business Insider article

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