It looks like the rumor is still on about the cheaper and smaller variant of the popular iPhone by Apple. You might be knowing that such rumors about the cheaper version of the iPhone to be made is existing from years. However, now, as a kind of supporting gesture to the rumor, a display supplier has been suspected offering the 4-inch screen panels to Apple.
Also, there are talks happening about the component makers from China and Korea to ship necessary components for this new compact iPhone.
However, the rumor cannot be confirmed as of now as it is purely based on some supply chain buzz. Adding more into this, it was rumored back in December last year that even after launching 4.7 inch iPhone 6 and 5.5 inch iPhone 6 Plus, the company might return back to that form factor in 2015 with a new low-end handset.
However, while the whole mobile market is concentrating on larger screens, it looks like Apple might be happy enough with 4 inch screen size. May be, the company might be looking at the ease of carrying rather than providing the best of facilities and display.
Whatever it might be, what we suggest is to just take this rumor as a mere speculation and wait until an official news is broken out from Apple.