Because Apple is so secretive with when it will release new products and what features they may boast, the rumour mill spins like crazy in the months weeks running up to the estimated release date of next-generation devices.
In this instance it's the iPhone 5, which is likely to release in the early summer.
Digitimes is now claiming that the iPhone 5 will use a 4-inch screen. It currently has a 3.5-inch screen, but many Google Android phones now have 4-inch screens.
This may also allow the iPhone to better compete against 5- to 7-inch tablets, because the iPad is only available in a 10 inch model.
Likelihood: High. Stretching the screen to the borders of the phone isn't difficult and 4-inch screens will like become the new standard for touch-screen phones.
This smaller iPhone would cost roughly $200 without contract, therefore free on a 3-year contract. This goes against Apple's luxury feel and considering the extreme demand of the current iPhone, a cheaper model isn't likely to boost sales because it will have less features.
Likelihood: So-so. The sources are relatively good, but Apple doesn't necessarily release every product it works on behind the scenes.
Apple.pro and AppleInsider report that Apple has been testing a fifth-generation iPhone with a slide-out keyboard. Again, this goes against Apple's norm, which is pushing its multi-touch technology across the iPad, laptops, and iPhone.
Likelihood: Low. The sources are as good as those from the smaller iPhone rumour, but if Apple releases a second model, it's more likely to be a smaller, discount version than a premium iPhone with a slider.