In-cell touch panels reduce the thickness of the screen by placing the touch sensors inside the color filters rather than atop them. Reportedly, this would reduce the thickness of the screen by about half a millimeter, while at the same time improving the quality of displayed images.
It's the sort of move Apple is not afraid to make, although if a hardware change could possibly negatively affect battery life, the company has a tendency to eschew the feature. An example would be LTE, which is known to sap battery life, and which Apple omitted from its iPhone 4S, despite the feature's appearance in the mobile devices of many other manufacturers.
The new technology would also simplify Apple's supply chain and simplify assembly, as the company would no longer have to buy touch panels and LCD panels from separate suppliers. The report said that Sharp, LG, and Japan Display (which is comprised of Toshiba, Hitachi, and Sony) are mass producing panels including in-cell technology for the Cupertino, Calif. company.
It's an apparent counter-move to Samsung's Galaxy S III and is thinner than the iPhone 4S. The GS3 comes with a Samsung organic light-emitting display (OLED), which doesn't require backlighting. Today's OLED displays are primarily supplied by Samsung; OLEDs tend to be thinner than conventional LCD panels.
The iPhone 5 is expected to launch later this year, alongside the rumored iPad mini. It will sport a larger screen, with a different aspect ratio, with the screen size somewhere around 4-inches diagonally. We're expecting the devices to ship in September or October, with iOS 6 "beating" them to the market by a week or so.