It will be another nail in their coffin
I realize that Chicken Little always cries that the sky is falling when it comes to new iPhone releases. But this time around, if Apple doesn't release a bigger phone, I think people who've been holding out hope are finally going to bail.
Like it or not, large displays are becoming the norm. Samsung sales have increased 23% this year already and iPhone interest has waned 21%. (
Source)
Consumers want options and Apple needs to meet those demands. If they want to keep the 4" inch phone as an option, that's great. I think it's nice to have variety. But they need to break this cycle of releasing "S" phones with hardware updates and move on to a solid iPhone 6 release with a large display.
I still have the iPhone 4S. Although the iPhone 5 looks nice, it just wasn't a big enough to warrant $199 of my money. In fact, I was tempted to buy an Android, but didn't because I still feel that Apple makes the best phones in the world.
So I've held out hope that 2013 would bring an iPhone that could compete. I really hope it does, and this isn't just my opinion. It's the way many consumers feel.
Apple has to listen to what the public wants, not tell them what they need.