The space between the top of the casing and the top of the IC chips. The height of the casing is dictated by those battery packs which would have to be redesigned flat. So, basically, speaking from ignorance, whatever engineering voodoo that Apple uses. But, again, just idle wishing.
I would seriously doubt Apple could design a device with the same array of input and output options, that we enjoy on the Hugo, that is in any way significantly smaller than Hugo.