Apple is preparing a 7.85in version of the iPad to compete with smaller tablets such as the Amazon Kindle Fire, according to news site DigiTimes.
The report cited sources in the manufacturing industry in saying that the smaller model will include display hardware from LG and enter production in mid-2012.
Apple is believed to be preparing the iPad 3 for next year, but reports from manufacturers suggest that the release could be delayed owing to component shortages.
The iPad is the best selling tablet by far, with about 60 per cent of the market. Apple's most recent quarterly report logged record sales of 11.12 million iPads.
Apple is also said to be developing a retina display for the MacBook Pro, according to an earlier DigiTimes report.
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