According to German site Macerkopf, Apple is testing out both dual-core and quad-core CPUs for future iOS devices.
Reports say that the iPhone 5 will include a quad-core CPU, a step ahead of the iPhone 4S CPU which is dual-core only.
Besides the 4-inch increase in the size of the screen, reports also say that the next generation devices could be powered by a resolution of 1280 by 720, which would be the best quality screen on the market.
In addition, Apple is thought to be considering the aspect ratio of the display. The current model has a 3:2 aspect ratio, but in the future that could change to a 1440 x 900 display, which is the HD standard 16:9 widescreen resolution.
Previous reports also speculate that the iPhone 5 will include LTE technology and that it will be released in March 2012.