Just when you thought there were enough iPhone 5 rumors for the day, another rumor drops. The latest rumor comes courtesy of Digitimes.

According to Digitimes, Apple’s next generation iPhone 5 will sport a 4-inch display, increasing from the current 3.5-inch display. Digitimes claims that the change comes to better compete with current Google Android handsets from HTC, Samsung, and Motorola…

The component suppliers noted that the production lines for Apple’s next generation iPhone have begun testing, and Apple is interesting in expanding the screen size to 4-inches to support the tablet PC market as the vendor only has a 9.7-inch iPad in the market.

Additionally, according to the same source, the next generation iPhone 5 will also feature an Apple A5 processor (possibly dual-core?), something we’ve been hearing for quite some time now. The A5 processor will directly compete with recently launched Android handsets sporting Tegra 2 dual-core processors.

Apple is reportedly looking to outsource the production of its A4 processor as well as the next-generation ARM Cortex-A9-based A5 processor to Taiwan Semiconductor Manufacturing Company (TSMC), according to industry sources.

According to Digitimes Research, the iPad 2 will support an enhanced version of the A4 and the A5 will power the iPhone 5. TSMC will initially produce the improved A4, and could likely become the exclusive manufacturer of the A5.

While I like the current 3.5-inch screen on my iPhone 4, if Apple wants to keep up with the competition they will most definitely have to increase the screen size. And from personal experience, in my opinion, 4-inches is the perfect size; not too small, not too big.

Let us know your thoughts in the comments!