Rumor: Apple taps AU Optronics to build 4-inch iPhone screens for 2016 hardware update

Apple is allegedly working on two devices, which the Chinese-language Economic Daily News referred to as the "iPhone 7" and the "iPhone 7c." Most reports have suggested that Apple's next flagship phones will be called the iPhone 6s and 6s Plus, with a third device — possibly a 6c — representing a more affordable entry point.

At the moment Apple sells a full four iPhone models. Although it steers people towards the 6 and 6 Plus, shoppers can still buy a 5s or even a 5c, the latter based on the internals of 2012's iPhone 5.

A first-quarter iPhone launch would be unprecedented for Apple, which has always preferred a summer or fall release date. But while rumors out of the Far East sometimes accurately peg future hardware plans, their claims about the timing of product launches frequently miss the mark.

Connected KGI Securities analyst Ming-Chi Kuo has, however, previously claimed that Apple will not release a new 4-inch iPhone until 2016, which could back the EDN rumor. According to Kuo, Apple is considering an upgraded 4-inch handset with Apple Pay for next year, not this fall.

For the past several years the smartphone industry has trended towards screens approaching or exceeding 5 inches. Apple ultimately caved to demand last year, producing the 4.7-inch iPhone 6 and the 5.5-inch 6 Plus. A 4-inch device may still have some appeal however, as both a cheaper and a more compact option.