Even as rumors about Apple's next generation tablet - dubbed iPad 3 - continue to grow, a report on another gadget called iPad Mini - an iPad with a 7.85-inh display that could compete with Kindle Fire - has surfaced.

Taipei-based DigiTimes  said that an iPad with a 7.85-inch display (iPad Mini) might be released by Apple in late 2012, or in time for the next Christmas, supposedly to compete with the 7-inch Kindle Fire from Amazon and smartphones with large displays.

iPad currently controls 70% of global tablet market and shipments are expected to touch 60 million units in 2011. However, as competition among various tablets intensifies, Apple will try to maintain its lead over rivals such as Amazon, Samsung, Acer and Toshiba.

The next generation iPad, or iPad 3, will be launched reportedly early next year. However, no exact date has been confirmed so far. Citi analyst Richard Gardner wrote in a research note to clients that the next iPad would hit the shelves as early as next February. DigiTimes, citing sources, reported that iPad 3 might be launched around late March or early April.

Apple has not confirmed whether it it will actually release a 7.85-inch iPad, but if it does, it will a major shift from what the company's late co-founder and former CEO Steve Jobs regarded. According to Jobs, any tablet smaller than 10 inches are “tweener” devices - too big to be a smartphoe and too small to be a tablet.

However, the fact that the 7-inch Kindle Fire is selling like hot cakes and Amazon said it's the company's best selling product ever might disprove Jobs' opinion. Also, as the number of smartphones that boast of 4-inch-plus screens grow, the threat will increase for both iPad and iPhone. In this regard, the smaller-sized iPad could be a powerful competitor among them.

According to DigiTimes, Apple will buy panes from LG Display and AU Optronics (AUO) and the manufacturers in the supply chain are likely to produce the iPad Mini from the end of the second quarter next year.

Richard Shim, an analyst at DisplaySearch, also told CNet  that the smaller-size iPad will launch later next year, possibly in the second half, after Apple releases iPad 3.

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