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Surely the M3 Mini will not use the same obsolete desktop enclosure as the 90W Intel Minis from 20 years ago. It’s now possible to shrink the Mini down to the size of an iPhone, and still give it a built-in battery and a small display like an iPhone, and also make it more powerful than fastest M2 and running MacOS. For under $1000 too.
But the Mini is already small, and it's not a portable so it doesn't need to fit into a pocket. And if you shrunk it to iPhone size you'd need to run its fan at high speed to keep it cool, thus giving up one of its most desireable characteristics: It's incredibly quiet.

So what would you rather have on your desk: A quiet Mini, or a noisy device the size of an iPhone?

Fan noise is intrusive; the visual impact of the Mini is not.

Plus, as others have pointed out, you'd give up a lot of ports if you went to an iPhone size. That means you'd probably need to add a USB or TB dock, and the two together would be larger and messier than the Mini alone. [Yes, you might need a dock even with the Mini; but at least with the Mini there's a good chance you might not.]

I can think of two applications where an iPhone-sized Mini would be useful. But if this were of interest to Apple, they should create a separate form factor for these, rather than compromise the current Mini's functionality:

1. Server farms that use Minis could create an insert that would allow them to put two iPhone-sized Minis into each current Mini slot. There noise isn't an issue, and they probably only need to connect via one port.

2. Custom installations into small spaces—e.g., if someone wanted to put a Mini inside a car dashboard.
 
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Or potentially USB-C power from a display
Another dependency which shouldn't be forced on to the users, narrowing the use To a very small subset of users. If people want it compact with limited power and ports, run a raspberry pi. Intel tried mental gymnastics with their NUC Micro PC small factors, which was miserable in almost all aspects.
 
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Another dependency which shouldn't be forced on to the users, narrowing the use To a very small subset of users. If people want it compact with limited power and ports, run a raspberry pi. Intel tried mental gymnastics with their NUC Micro PC small factors, which was miserable in almost all aspects.
Or if they wanted to stay in the Apple ecosystem, they could get an iPad Mini (but they'd have to give up running MacOS, and the display support is limited: 4k@30Hz). Or there's the iPhone 15 Pro, which I've read can support 4k@60Hz, but that's a pricey solution.
 
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Running the current 24" LG display over USB-C for the current file server Intel i7 mini and will do so for the new M2 Pro mini (32GB, 10Gb ethernet, 2 TB SSD) when it gets here in about a week. I do not need a super fine monitor what the system is doing. Apple Remote Desktop works, except when certain system work requires a monitor.
 
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