It's reported Steve Jobs did ask Intel to provide CPU for the first gen of iPhone, but the offer price was too low so Intel would lose money. If you were the CEO of Intel, how would you explain it to the board that "we should make this deal with Apple even with loss, because I think iPhone will be the next big thing"?
The proposal was unstable on both sides in fact. Jobs didn't fully appreciate the importance of power efficiency at the time - an internal team scrambled to demonstrate why Intel would have been a non-starter due to power budget. There were also ecosystem issues, since gearing up for an embedded device at that time mostly meant choosing ARM architecture for that complexity tier they were engineering.
So a deal based on any price wasn't a realistic avenue for iPhone. The fact that Intel was actually considered was itself a radical move on behalf of Steve (absent the technical obstacles that emerged later).
Likely they did but Apple didn't want to pay more. Apple generally is not known to be flexible when it comes to business deals with suppliers.
This is reported in a profile of Otellini:
> "We ended up not winning it or passing on it, depending on how you want to view it. And the world would have been a lot different if we'd done it," Otellini told me in a two-hour conversation during his last month at Intel. "The thing you have to remember is that this was before the iPhone was introduced and no one knew what the iPhone would do... At the end of the day, there was a chip that they were interested in that they wanted to pay a certain price for and not a nickel more and that price was below our forecasted cost. I couldn't see it. It wasn't one of these things you can make up on volume. And in hindsight, the forecasted cost was wrong and the volume was 100x what anyone thought."
