A 3cmx3cm Apple touchscreen is spotted.
Sounds perfectly plausible.
Ever since a 326ppi retina display doubled the touchscreen resolution, it makes sense that a device about half the area is on the cards, since the apps which addressed 480×320 pixels of an iPhone can run unchanged, since those pixels would now occupy half the real area in inches.
But it is not as easy as that, though. If you shrink the iPhone size half, there is no room for a keyboard when held in portrait mode, at least. So the smallest touchscreen (which works iOS style), would need more width on the thin side, making it squarish- as a smaller keyboard is perhaps not practical.
Perhaps bundle Bento or special apps for special communication type tasks, and make an iPhone which is essentially a phone. Perhaps only wifi? Perhaps not even that?
Just a phone with useful contact apps+Photo/Music…
$99? Apple will rule Asia overnight I can bet.