Most non-Apple smartphones have micro-USB ports for charging, and most made in the past few years also support sending an HDMI signal through this port, either via MHL [1] or SlimPort (notably, Nexus 4). All it takes is a $10 adapter cable rather than a $40 SoC transcoding things.
They also have hardware in the phone to generated HDMI (although electrically modified to fit on the USB connector). Given that only a tiny percentage of people will ever plug their phone into HDMI, it makes sense to have that minority pony up $40 instead of making everyone pay an extra dollar for the hardware they will never use.
But if they cared about cutting costs they wouldn't have invented their own cable to begin with. When has Apple ever worried about making people pay for things they don't use?
I'm disappointed because Lightening was billed as the next innovation in design, but if the picture quality is worse then what's the point?
Apple has no problem making pay – but they do have a problem making people pay for stuff they don’t use. Nothing to do with costs per se, it’s more a philosophical stance.
That's already part of the soc and also most likely part of the Apple AX SOCs of the iOS devices as Apple uses PowerVR for graphics.