Need a *real* 4" iPhone, Apple!
If this rumor has validity, I sure hope it is in addition to a real 4" iPhone model (on par with the 6s and 6s Plus). The people who are looking for a 4" iPhone don't want a budget phone, they want a 4" model back, as it fits the way they use a, wait for it, PHONE!
We already have a computer, so aren't trying to replicate it's use on our mobile device. It's a smart-phone which we use in addition to our laptop or tablet. We want it to fit well in our hand or pocket, and to be able to reach touch-targets with our thumb while holding it.
If it has an A8, it's already obsolete, as an A8 has only 1 GB RAM. It might last one more iOS cycle, if we're lucky. After that, it will be like older devices are now on iOS 9, ie: a poor user experience.
And, as for the last paragraph about reduced orders and slowing demand..... duh, Apple does this every year. Demand always slows after the holidays. Not exactly rocket science, or how most people would take such a statement.