Apple is a luxury product. It is the best. If they started selling not-the-best, it would tarnish their (well-earned, in my opinion) reputation for always making the best.
I use an Android phone and will freely admit that Apple phones are just better. They have better battery life, brighter and larger displays, better manufacturing (no seams, better materials), much better cameras, faster and better-engineered CPUs, a better app ecosystem, and a whole lot of other stuff (better buying experience, better advertising that contributes to the perception of quality, better post-sale support) that combine for a holistic experience of "better" for users.
The way they make money on used is their 30% cut of all app store revenue. You sell any sort of digital goods, whether Candy crush items, digital music, etc., Apple takes ONE THIRD of that. When you consider the size of Apple's installed base of devices, that ends up being a pretty big number.
Also, Google pays Apple a non-trivial amount of money (widely rumored to be hundreds of millions/year) to be the default search engine on iOS. This amount is so large, it's starting to drag down Google's operating margin (read about "traffic acquisition cost" for google). Yet more money from a bigger base of iPhones.
A lot of people are asking why the got rid of the SE model and I think this is exactly why it doesn't actually help with their positioning.
The SE only existed because the SE wasn't difficult to design and had a high profit margin. Now the SE is gone because integrating the newer technology like Face ID is harder. Come a smaller camera assembly and reduced part costs, we could have another SE show up.
I thought it was known to be $3B?
http://fortune.com/2018/09/29/google-apple-safari-search-eng...
They don’t even need to sell devices to Android users. The diets of people that tend to use hand-me-down iPhones are quite likely to get an Android instead. If iPhones last longer, these people will stay in the iPhone ecosystem longer and there will be more of them.