The hard reality is that there is no PAYING market for such a device, because when it comes to the point-of-sale, most people still choose the normal-size device with better screen/battery/camera. This is equivalent to something I called the "QWERTY paradox" more than a decade ago: Back when the Smartphone market exploded, people disliked typing on a touchscreen and repeatedly stated that they want a device with a ph…
This kind of over-generalization is always annoying me deeply.
Of course there IS a market for such a product, because at the very least I exist (as well as a good fraction of the 320 other people from HN who upvoted this submission so far).
The problem is that this market is tiny, and even a smaller share of this market is willing to make massive concessions on other aspects of the phone to have a smaller phone, so you end up with a much harder design space (because size is a big engineering constraint) for a minority market, and the endeavor is often not profitable enough for that reason.
It doesn't mean there's no market, it just means addressing this particular market is a tough business, these two statements aren't equivalent.