I favor "Nexus 5" solely because it offers a more accurate description and identity to the device. It's a near 5" screen. People will get that. It helps with making sense of the branding.
But I will say this:
It has
nothing to do with the generation. It may have represented the generation before (the Nexus 4 is the only one to do this and I personally think it was just a happy coincidence), but it certainly doesn't anymore moving forward. Anyone who argues that the number has anything to do with the generation just isn't paying enough attention. Does that mean both Nexus 7's (2012, 2013 versions) were 7th generations? The Nexus 10 (and the soon to be Nexus 10 2013) also 10th generation? What happens to the 6th and then 7th generation Nexus smartphones (and 8th, and 9th, etc.)? Will they be called Nexus 6, Nexus 7 (<-- confusing much?), and so forth? Of course not.
Even if the new Nexus smartphone ends up being called "Nexus 5" it would be another happy coincidence that it so happens to also be the 5th generation Nexus smartphone. I hope people give that argument a rest.
Ultimately, I don't care what Google calls it. But Nexus 5 makes the most sense to me for their 2013 smartphone.
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Personally, I think Google should make a Nexus 4 (4.3" screen), a Nexus 5 (4.9 or 5" screen), a Nexus 7 (duh), a Nexus 10 (duh), and a Nexus 12 (12 or 12.1" screen). [EDIT: Obviously the N4 and 5 would be smartphones, and the N7, 10, and 12 tablets.]
Grow the family! And each device will be tied to an OEM for two years. That way, they get a second shot, but it also makes things exciting after their two year cycle is done -- "who will be the next Nexus maker?" That's always a fun thing to discover.
All the while continue to offer and expand the Google Play Editions of each year's flagships as well (Galaxy S5, HTC One 2014, Xperia "Z2", Moto X-2, etc.).
If Google can pull all of that off...