The iPhone SE was just as fast as the flagship phone (6S) when it was released. It didn't have the faster TouchID or 3D Touch, but neither did my iPad Pro, so I don't think they were trying to hold the phone back.

Now if they only kept updating it...

I would love the iPhone X features in an SE sized device.

I used the iPhone SE for longer than any other cellphone (from iPhone SE release to iPhone X release)

I'm not sure it's an issue with them not understanding, but rather straight up physics. It's an engineering marvel to get the components into the 15" as they do. Now try cramming that same tech into 77% of the space. There are going to be compromises. I would guess it's a similar story with the iPhone.

They could probably do it with the iPhone if they didn't insist on also making the phone inexpensive. After all, the SE is significantly thicker than the current generation phones.

And they could probably do the same with a variant of the 13" MBP if they were willing to sacrifice a bit of battery life or just go back to the thickness of the 2015 models.

If they didn't have to the fit the pointless Touch Bar and its extra co-processor in there...