Apple CEO shoots down idea of inexpensive iPhone

Apple will not create a new, inexpensive iPhone just for the sake of offering a cheaper alternative, Apple CEO Tim Cook said in a speech on Tuesday.

The company's focus is on creating great products, and it will not make a smartphone that does not past the quality test, Cook said during a webcast from the Goldman Sachs Technology and Internet conference, which is being held in San Francisco.

"There are other companies that do that, that's not who we are," Cook said. "Our North Star is great products."

Instead, the company is now dropping prices on the older iPhone models. That has been successful, and the demand for iPhone 4 models in December was greater than supply, Cook said.

"It surprised us as to the level of demand we have for it," Cook said.

Lowering the price on older models is just one of the approaches Apple is taking to reach out to price-sensitive buyers. It's not easy to balance quality and price, and that's when innovation comes into play and new products could be created to meet consumer demand, Cook said.

"Sometimes you can take the issue ... and you can solve it in different ways," Cook said.

For example, the first iPod that shipped in 2001 was priced at US$399, and now users can buy an iPod Shuffle for $49. There was also a big demand in the past to drop the price of Macs to under $500, and Apple tried and couldn't do it, so it created the iPad tablet.

Apple will have more room to grow in the smartphone market, and its market share has not flattened in the wake of increased competition, Cook said.

The global smartphone market is about 700 million units, and is projected to double in a few years, Cook said. The iPhone is also available to only 50 percent of subscribers worldwide, with a big market to tap into.

In addition, iPhone shipments are increasing at a fast rate, Cook said. About 500 million iPhones shipped from 2007 to the end of last year, with 40 percent of the iPhones shipping in the last year, and 47.8 million shipping in the last fiscal quarter.

"Frankly, I see a wide open field," Cook said.

Beyond the iPhone, Cook said that the tablet market will continue to grow, and is projected to top 375 million in three years, which will outpace the contracting PC market.

"I think we're in the early innings of this game," Cook said.

Apple will also continue to look at acquiring companies as it builds products, but will be especially careful when looking at big companies.

"We have looked at large companies. In each case we have done that thus far, it didn't pass our test," Cook said.

The company has made many acquisitions over the last three years, mostly smaller companies that have smart people and valuable intellectual property, Cook said, giving the example of chip maker PA Semi.

PA Semi helped in the development the chips and engines that run the iPhone, iPad and iPod. At the time of the acquisition in 2008, PA Semi was working on chips based on the Power architecture, but that was abandoned and the new personnel were moved over to work on Apple's ARM-based chips.

"We will do more [acquisitions], we are constantly looking in the market," Cook said. "Cash is not burning a hole in our pocket."

The company is not under pressure to acquire new revenue streams and will look to acquire companies with complementary skill sets and offerings, Cook said. Apple has a cash reserve of $137 billion.

Agam Shah covers PCs, tablets, servers, chips and semiconductors for IDG News Service. Follow Agam on Twitter at @agamsh. Agam's e-mail address is agam_shah@idg.com