Either: 1) Apple thinks it won't be so niche in the future. 2) It's niche but profitable because those buyers who exist will pay a lot. 3) Apple made a foldable iPhone because they don't know what they're doing or they hate money or something.
Similarly, Apple doesn't make a small phone because either: 1) It's too niche to be profitable. 2) It could be profitable but those resources are better spent on more popular products. 3) They don't know what they're doing or they hate money or something.
And other smartphone companies make foldable phones and not small phones because: 1) Foldables are profitable and small phones aren't. 2) That's not yet true but it's where the market is heading. 3) They all don't know what they're doing or hate money or something.
You're arguing for 3?
I think they are exploring the market. But Apple has done very clear mistakes in the past, such as the Vision Pro and Apple Intelligence. It’s not like a very large corporation not understanding what their market wants is a new phenomenon.
In any case, with Apple the commentary is always the same, if they release a small phone next year people will be saying „Apple knows exactly what they are doing, that’s exactly what the market wants“, if they don’t it’s also a sign they know exactly what they are doing. Anyone expressing their dissatisfaction with the direction of a product line „is in a bubble and doesn’t know what others want so should be ignored“. That has been the case since decades now.