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Apple CEO Explains Why Apple's Products Are So Expensive (Sort Of)

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APPLE CEO TIM COOK PRODUCTS EXPENSIVE
AP

Apple CEO Tim Cook's keynote speech at the Goldman Sachs Technology and Internet conference on Tuesday was mostly a chance for the chief executive to rehash his well-worn talking points.

He reiterated that Apple's $137 billion in cash is not "burning a hole" in the company's pockets; that Apple believes in cannibalizing its own products before competitors do so; and that building the world's best products is Apple's "North star."

But Cook also addressed a question that most consumers find themselves asking regularly: Why are Apple products so expensive?

His answer -- that Apple doesn't want to sacrifice quality for price -- served mainly to reinforce his argument that Apple values great products over all else. (In typical Apple fashion, he made some half-dozen references to Apple's "magic" or "magical" products.) Yet he also suggested that Apple's innovation and product pipeline is driven at least in part by an effort to produce new gadgets at lower price-levels.

"Instead of saying, 'How can we cheapen the iPod to get it lower?' We ask, 'How can we do a great product and do it at a cost that enables us to sell it at the low price of $49?'" he explained.

Cook noted that tech observers wondered for "years" why Apple didn't offer a Mac for under $1000.

"Frankly we worked on that, but we concluded that we couldn't do a great product. And so we didn't. But what we did do is we invented the iPad," Cook explained. "Now all of a sudden we have an incredible experience that starts at $329. Sometimes you can take the issue or way you might look at an issue and solve it in different ways."

Instead of offering a cheap laptop, in other words, Apple made an expensive tablet.

Of course what Cook didn't choose to highlight were Apple's sizable profit margins on those devices. Apple's third-generation, 64GB WiFi-enabled iPad costs $366 (not including non-manufacturing costs) and retails for $699, earning Apple a profit margin of around 48 percent, according to iSuppli.

As Bloomberg reported earlier this week, Apple's profit margins have been under pressure, and recently dropped back to their 2007 levels, before the launch of the iPhone or iPad. For the last three months of 2012, Apple reported margins of39 percent, down from 45 percent a year earlier.

The good news is Cook can rely on Apple to cheer him up when he's feeling down.

"If I ever feel I'm dropping down from an excited level, I go into a [Apple] store," Cook said. "It's like a Prozac or something."

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