Seth Weintraub, writing for 9to5Mac, gives details on the next-generation iPhone:
Both of these phones sport a new, larger display that is 3.999 inches diagonally. Apple will not just increase the size of the display and leave the current resolution, but will actually be adding pixels to the display. The new iPhone display resolution will be 640 x 1136.
My bet is that Apple decided keeping the 3:2 aspect ratio on a larger screen wasn’t worth sacrificing the iPhone’s fit-in-your-pocket form-factor. As a compromise, they retained the same width and stretched the vertical extent of the screen by 176 pixels. Since the screen will presumably retain its 326 pixels-per-inch resolution, the top and bottom portions of the bezel will each be reduced by approximately one-quarter inch. To visualize these changes, Weintraub included a mockup.
So why 176 pixels? As Weintraub goes on to explain, 640 x 1136-pixels at 326 pixels-per-inch works out to a roughly four-inch diagonal display. In addition, John Gruber notes that the display would qualify as a traditional widescreen display:
1136 × 640 is within five-thousandths of an inch of exactly 16:9. So I think Apple would be safe to bill an 1136 × 640 display as sporting a 16:9 aspect ratio.
This seems like a reasonable compromise to give users and developers larger screen real estate without joining the big-ass-phone arms race.