I think number 2 nails it. Apple doesn't do low end, they've never needed to compete in the area as it's not their dog show. However there's a market, there's people who dearly love the iPhone but can't justify the full price device, or kids or someone who's transitioning to their first smart device.

So Apple has a situation. Go low end and basically go against the corporate ethic, or allow Moore's Law to let them price the previous generation down so they're still making a profit but allows them to fight at a lower price point. And that's smart, as it covers the bases, and that's what Cook has brought to the table.