In-cell technology integrates touch sensors directly into the LCD panel itself. In today's iPhone screens, there is a capacitive touchscreen layer and an LCD panel layer. Combining the two layers into one panel is important for two reasons: it shaves 0.5 mm from the thickness of the display, and makes the resulting display brighter.
Apple is working with Sharp and Japan Display to make this technology a reality, according to sources cited by The Wall Street Journal. The Journal notes that switching to in-cell technology also simplifies supply-chain logistics for Apple, which will now only deal with one supplier for the in-cell panels rather than two suppliers (one for the touch panel, one for the LCD screen).
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But is saving half a millimeter really a big deal? In the world of smartphones, yes.
Handset makers have nearly always striven to make devices as thin as possible. For example, the iPhone 4S measures 9.4 mm (0.38 inches) thick. By way of comparison, the Samsung Galaxy S III measures 8.6 mm (0.34 inches) thick, and the HTC One X measures 9.7 mm (0.39 inches) thick. The Motorola Droid RAZR, a marvel of engineering, measures a scant 7.1 mm (0.28) inches thick.
Being able to claim the title of "thinnest device" certainly helps with the marketing materials. Device thickness, er, thinness, is about more than just bragging rights, though. It contributes directly to how the device fits and feels when held and used by owners. Saving space on the screen's thickness also means Apple can offset the weight gain that will come with the larger display of the iPhone 5.
In the case of in-cell technology, Apple will also benefit from added brightness to its display. Reducing the amount of material through which light has to transit should help increase the readability of iPhone screens.
Samsung has long used OLED panels in its smartphones. This has given it an advantage over Apple because OLED panels don't require backlighting and are thinner by nature. With the competition between Apple and Samsung as fierce as ever, Apple needs any edge it can get to help its next-gen device be as competitive as possible.
The iPhone 5 is widely expected to debut in the fall, most likely in September or October.