Well this is the thing!
It would clearly be possible for Apple make a perfectly good iPhone for less than $500, whilst still making a very decent profit on each phone. Not everyone needs the most expensive hardware. And if Apple’s software is as good as they say it is, surely there must be many people who can’t or won’t buy a ‘premium’ phone, but who might still like to benefit from Apple’s software?
Apple is presumably concerned, however, that such a phone might cannibalise sales of their ‘premium’ phones. Otherwise, they’d do it, wouldn’t they?