Apple has a simple strategy - to make the best consumer products. Apple's brand strength lies in their ability to consistently meet this goal. Consumers trust that when they purchase an Apple product that they are getting a best in class product.
If Apple launched a cheap iPhone customers would feel betrayed because they would be getting a mediocre phone not a great one. Additionally Apple would permanently damage their brand because customers will no longer be able to trust Apple to consistently deliver excellent products. While a cheap iPhone could lift short term profits, the long term impact to brand equity is never worth it.
Sony once had a brand that was synonymous with high quality products but because they pursued profit before brand consistency they are lagging in every single consumer electronics category.