People familiar with betas of the iPhone 3.0 software developers kit recently dug up several header files attributed to the Japanese manufacturer in a directory appropriately labeled "compass." More specifically, the files identify Asahi Kasei's azimuth sensor No. AK8973, a 16-pin leadless IC package measuring 4mm square and 0.7mm thick, as the chip that will help future iPhone users determine their direction. It bundles a master clock oscillator.
As already evident in the Android G1, a digital compass allows for a better Google Street View experience, but can also make things like turn-by-turn navigation and other orientation-based functions smoother and more precise.
Apple Insider also states that this is but one of three new, confirmed hardware features, the others being a better, video-capable camera and a faster, 802.11n Wi-Fi chip.