There are speculations that Apple may introduce a larger iPhone in 2014. The reasoning is that high-end Android smartphone users generally tend towards large displays and therefore the iPhone has to have a larger screen to compete.
I think that this line of logic forgets that fact that smartphones are no longer just phones or even Internet communication devices. Smartphones are general purpose computing devices that you can carry around with you, almost all the time. This should be the new definition of what smartphones are.
Why is this important?
If you consider smartphones to be primarily Internet communication devices, then yes, a larger screen size may be preferable (this is actually debatable because mobile websites are becoming better and better, making a smaller screen more comfortable for web browsing, but that’s another discussion).
However if you use a smartphone as a fitness tracker, then smartphones should get smaller. When you are running, you are probably not wearing baggy jeans nor are you carrying a purse. You will put your phone on your regular size pocket or strap it to your arm or something.
Apple integrated the M7 chip on the new iPhone 5s, strongly suggesting that Apple wants users to carry around the iPhone all the time. Obvious applications are fitness, but I expect more than just that. This suggests that the direction Apple is heading is not larger phones, but rather phones that are even smaller and lighter.
You have to remember that Apple seriously thinks about why certain products exist. Products have to fulfill a meaningful use-case, and have to fulfill it better than any other product. If you create smartphones that are larger, then they basically become half-sized tablets. There remains little reason why a large smartphone and small tablet (like the iPad mini) should co-exist.
My guess is that Apple is positioning iPhones as devices that you carry with you all the time almost like a wearable. Hence iPhones will evolve to make you more likely to keep in your pocket, not less.
Reiterating my point, I don’t necessarily doubt that a larger iPhone would make financial sense, at least in the short term. It is very possible that such a product would boost iPhone sales. I just don’t think that that is a priority for Apple. I sense that their priority is the long term evolution of smartphones into something more.