Most of the time those smaller form factor Android phone have had lackluster CPU, mediocre battery life, and crappy cameras. The SE is very close to a flagship product in terms of performance.

The Xperia Compacts were almost exactly their flagship counterparts but with smaller bodies/displays (and sometimes less ROM).

Indeed, I think it's been a vicious circle of lack of demand leading to lacklustre products.

This phone does look close to flagship in terms of cpu etc, though may be missing various features - multiple cameras etc - compared to actual flagships.

I'd like a tiny flagship....

There are a lot of reasons small Android phones didn't work. One of the biggest reasons Android went to bigger form factors first was because they needed the extra battery capacity. Android was a bit of a battery hog and, CPUs on the higher end Android phones were pretty demanding. That last bit is likely the biggest reason small form factor Android died an untimely death.

I'm pretty sure it was more market driven. Everyone laughed at the Galaxy Note when it launched, including me. Then we all went and bought one.

It seems to me there's room in the market for one or two high-end compact Android phones. It's not a big enough segment for every company to sell one profitably, but if someone really nailed that niche....

Lower-priced sports cars don't sell well lately either, but Mazda continues to do well with the MX-5. There's a lot of value in finding an underserved niche and making a product that fills it perfectly.

The problem with the Xperias is that there are counterfeits out there.