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Tim Cook Says Old IPhone Is Apple's New Cheap Phone

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Apple Debuts IPhone 4S With Faster Chip
Tim Cook, chief executive officer of Apple Inc., speaks during an event at the company's headquarters in Cupertino, California, on Oct. 4, 2011. Photographer: David Paul Morris/Bloomberg

The euphoria Apple investors felt when the company finally unveiled a plastic, lower-priced iPhone on Sept. 10 was short-lived. Before the news conference, analysts expected a cheaper device that would create a new class of Apple smartphone customers in China and other emerging markets. But the 5c, with a contract-free price tag starting at $549, was still too expensive.

In response to critics, Apple CEO Tim Cook suggested in an interview with Bloomberg Businessweek that his company's strategy at the lower end of the market hasn't changed: The new cheap phone is the old iPhone 4S.

"I know there is a lot of focus on, 'Is the price low enough?'" Cook said. "We’ve had amazing success with iPhone 4, amazing success, in a lot of the markets that people are focused on. ... We're not selling iPhone 4, but we’re now selling the iPhone 4S, and the 4S is free in many places. In the subsidized markets, it’s an even more attractive price than the 5c."

That nugget comes from the full interview transcript posted by Businessweek's Sam Grobart. His cover story touched on why Apple isn't pouring resources into competing in China's "junk part of the market," as Cook called it. "We're not in the junk business."

"We never had an objective to sell a low-cost phone," Cook said during the interview. "Our primary objective is to sell a great phone and provide a great experience, and we figured out a way to do it at a lower cost. Therefore, we can pass that on. And we figured out a way to sell 4S at substantially less than we were selling it for before, and we’re passing it on."

Many Apple watchers would love to see the company expand its market share with a brand-new, bargain-basement smartphone. But that could have consequences for Apple's enviable profit margins, said Duncan Clark, an analyst at research firm BDA in China.

"It would be a mistake for them to really go to the low end because in China, you always lose as a foreign player at the low end," Clark said in an interview on Bloomberg TV . "You can never compete on price and distribution. Nokia had that for a long time but lost it. And I think, actually, Apple is well-advised to keep going for the high end."

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