Apple Inc. (Nasdaq: AAPL)  is preparing to overhaul the look of its iPhone, three people with knowledge of the plans said, refreshing the company’s top-selling product amid competition from rivals such as Samsung Electronics Co.

Apple, based in Cupertino, California, has placed orders from suppliers in Asia for screens that are bigger than the 3.5- inch size now on the smartphone, said one of the people, who asked not to be identified because the plans aren’t public.

Apple co-founder Steve Jobs had worked closely on the redesigned phone before his death in October, one person said.

The design change will be Apple’s first for the iPhone since 2010, when it introduced the iPhone 4. Electronics makers, led by Samsung, are moving toward bigger screens, as consumers use handheld devices for a broader array of tasks, including watching video, playing games and browsing the Web.

Apple is girding against competition from rivals such as Samsung, which have made Google Inc.’s Android the most widely used smartphone software. Samsung regained the lead in smartphones in the first quarter using screens of many sizes.

A new iPhone could be released by October, analysts have predicted. Apple has been working on the new device since before the current iPhone 4S model was introduced last October, said one person with knowledge of the project. Jobs, who had gone on medical leave from Apple starting last January, played a key role in developing the phone, this person said.
Natalie Kerris, a spokeswoman for Apple, declined to comment.

Popular Product

The iPhone, introduced in 2007, is Apple’s most-popular product, accounting for 58 percent of its sales in the fiscal second quarter. The product, along with the 2010 debut of the iPad, has helped catapult Apple past Exxon Mobil Corp. to be the world’s most valuable company. Since Jobs unveiled the iPhone, the company’s stock has risen more than fivefold.

Apple fell 2.9 percent to $530.12 at the close yesterday in New York. The shares have risen 31 percent this year.

The Wall Street Journal reported earlier this week that Apple would be adding a 4-inch screen. The company is working with several screen makers on the new iPhone, including LG Display Co., Sharp Corp. and Japan Display Inc., the Journal reported, citing people familiar with the plans. Production could begin as early as next month, the report said.

Apple’s rivals have been introducing devices with bigger screens than the iPhone. Samsung sells at least 13 smartphones with screens ranging from 2.8 inches on the Replenish to 5.3 inches on the Galaxy Note. HTC Corp.’s One X has a 4.7-inch screen. Apple, which has always favored a limited number of models, offers only a 3.5-inch display on the iPhone.

Faster Wireless Network

Piper Jaffray Cos., Barclays Capital and Sterne Agee & Leach Inc. are among securities firms that have predicted Apple would introduce a new iPhone in the fall.

In addition to the larger screen, analysts including Gene Munster at Piper Jaffray have predicted the next iPhone will be compatible with the new wireless networks being built by carriers including AT&T Inc. and Verizon Wireless. The new iPad released earlier this year works on those networks.

What’s unclear is whether the screen size change means the device will be bigger or the screen will take up more space on the front — with the iPhone keeping the same general dimensions it has had since 2007. A 4-inch screen, measured diagonally, can fit on the face of the iPhone with the current dimensions.

Speculation that Apple is planning a new iPhone can lead to a drop in sales of current models. In the company’s fourth quarter, Apple reported sales and profit that missed analysts’ estimates as customers waited for the iPhone 4S to be introduced. In April, Apple predicted sales and profit in the current quarter would decline compared to last quarter.