Some interesting speculation going on about a possible new iPhone size. Mainly focused around the idea that an iPad mini is a pre-retina iPhone screen density at iPad-resolution, and speculating that there could be a screen at iPad-screen density at iPhone resolution.
Lots of thoughts about supply chain efficiencies, how it would compare to other bigger smartphones, and what existing apps and Ui would look like on a different sized screen. But for me, this seems to be the key point;
Almost 9 out of 10 AT&T customers bought 4-inch or smaller iPhones last quarter rather than all big screen Android and Windows Phones combined, and roughly 6 out of 10 Verizon customers did the same. So aside from geeks who keep posting about how they really want it, and shoppers for whom bigger as a feature is always better, Apple might not feel any pressing, mainstream need to add another screen size to the iPhone product line. Yet.
It seems a safe bet that 99.9% of people have no need for more than one iPhone. On the other hand, I can see people wanting more than one iPad (eg. A big, retina display one in the living room for the family, and a mini for more personal/mobile usage), And a much bigger market for people who want both an iPhone + iPad. (I can't see why anyone wouldn't want an iPad, other than people who just don't want an Apple device because of the brand/price etc. ie. people who Apple are never going to be able to sell anything to.)
Perhaps a 5-inch iPhone would appeal to people who like the idea of a tablet, but don't like the idea of multiple devices. (Obviously, there are things you can do with an iPad mini that you can't do with an iPhone. Making calls springs to mind…) But the flip side of that is that if you have a larger iPhone, you are probably much less likely to be interested in a smaller iPad.
The real question for Apple is how many of those people would prefer to have a smaller iPhone to a bigger phone from another manufacturer (ie. would still buy Apple products anyway), and how many would 'settle' for an iPhone + iPad mini instead (ie. would contribute more to Apple's bottom line if they didn't sell a bigger iPhone.)
In other words, whether or not Apple can make this isn't really going to be anything to do with the technology, and not much to do with competitors. It's going about Apple's understanding of tablet and smartphone buyers. And I think the idea that people like the idea of tablets, but want one device rather than two is pretty convincing (even though I'm not one of them…)