Next-generation iPhones likely to focus on internal improvements.
iPhone 5 to Also Use A5 Dual Core Processor
Reference to A5 processor in upcoming iPhone 5
It should come as no surprise, but the latest iOS 4.3 SDK has uncovered evidence that the upcoming iPhone 5 will use Apple's new A5 Dual Core processor. The A5 processor was introduced as part of the iPad 2 which will launch this Friday. Apple presently uses a single-core A4 processor for the iPhone 4. Everyone has assumed that Apple will adopt the A5 processor for future iPhone and iPod Touch devices, it's still nice to have some proof.
The proof comes by way of a few tweets from @chronic (one, two) identifying the new A5 processor as being referenced by 'S5L8940'. Then, @naynee75 reveals that the N94 kernel files also contains a reference to the same A5 processor. (via iClarified). The N94 is believed to be the codename for the unreleased iPhone 5.
Historically, Apple has refreshed the iPhone in the summer (June/July) at WWDC.