Technology news website TechnoBuffalo cited John Gruber of Daring Fireball, who revealed during a recent 5by5 podcast with Dan Benjamin that Apple is not only mulling over a smaller version of iPad, but also has a 7.85-inch iPad in its labs. Though Gruber was uncertain if the device would ever hit retail stores, yet he said that Apple could possibly announce the new tablet as early as the WWDC in June.
What I do know is that they have one in the lab, a 7.85″ iPad that runs at 1024 x 768. And it's just like the 9.7-inch iPad shrunk down a little bit. The apps wouldn't need to be redesigned or recompiled to work on it - it's just the iPad smaller, Gruber said.
According to iDownloadBlog, the success stories of sub-$300 tablets by companies like Amazon and Barnes and Noble could be the reason for Apple to dip its toes in the market. Many reports suggested that Google would also introduce a competitively priced Nexus tablet later this year.
First of all, a smaller iPad could compete against Amazon's Kindle Fire and Barnes & Noble's Nook Tablet. Secondly, a 7.85-inch 1024x768 display with 163 ppi would give the mini iPad a pixel density that would be in line with the pre-Retina iPhone and iPod Touch.
The report did mention that while it's difficult to predict whether Apple would be producing such a mini iPad, the 7.85-inch size is not as arbitrary as it might seem.