Dan Moren, writing for Macworld:

But there’s a far more pragmatic reason Apple might consider a smaller iPhone. Consider that the iPad, which has been suffering from dwindling sales of late, does fairly small business compared to the iPhone. In the most recent quarter, Apple sold 9.9 million iPads—and 48 million iPhones. Almost five times as many. If Apple’s willing to explore a niche market by making a larger iPad—of which it might sell a few million—then a smaller iPhone might be an equally, if not more, viable product.

This is a very clever way to think about it. And one I haven’t seen mentioned before.