The iPhone ‘SE’ is set to replace the iPhone 5s and is expected to sport the same chips that are in the iPhone 6s, the A9 processor and the M9 motion co-processor, which means the device could have an ‘always-on’ Siri. Other rumored features include an NFC chip for Apple Pay and support for taking and viewing Live Photos (3D Touch).
The ‘SE’ in the name signifies that this new 4-inch device is an ‘special edition’ or ‘enhanced’ version of the iPhone 5.
I think Apple will end up calling their upcoming 4-inch iPhone, the iPhone SE. It makes more sense than having a ‘5’ in the name and what with it borrowing features from the iPhone 6s, such as Live Photos, it could be confusing to some.