Some blogs think this rumor is complete hooey, but I am less certain. According to Cult of Mac:
We’re not convinced!
Personally, I’d suggest the report is 99 percent likely to be nonsense. Apple only just upgraded to the larger screen size with the iPhone 6 and 6 Plus, to both critical and commercial acclaim. Between them, the two handsets smashed records with 10 million+ sales in their first weekend on sale, and analysts arepredicting 71.5 million more units will sell over the holidays.
My usual rule is to disbelieve Apple rumors until I see solid info like an attributed statement, parts, photos, or diagrams, so I won't come out in support of this rumor. But I also won't dismiss it cavalierly.
While it may sound unlikely that Apple would release a 4" iPhone, there was a time where I would not have expected Apple to have 5 iPad models (with a new larger one probably coming in the spring). I also would not have expected Apple to have 2 iPhone models.
And yet Apple has all those models. And if Apple has 2 iPhone models, can you say with absolute certainty that they won't add a third model to the lineup?
I wouldn't be so sure. What do you think?