Rumor: Apple looking to release 7-inch iPad in 2012

If there’s a rumor, there must be a nugget of truth in there somewhere.

Per DigiTimes, Asian supply chain sources are now claiming Apple will release a 7.85-inch iPad by the fourth quarter of 2012 to face off against competition from smaller tablets such as Amazon’s Kindle Fire.

The web site claimed on Friday that Apple is “likely” to launch a smaller iPad several months after the next-generation iPad, which is expected to arrive at the end of the first quarter.

“In order to cope with increasing market competition including the 7-inch Kindle Fire from Amazon and the launch of large-size smartphones from handset vendors, Apple has been persuaded into the development of 7.85-inch iPads,” the report noted sources as saying.

Apple will allegedly purchase the 7.85-inch panels from LG Display and AU Optronics, with makers within the company’s supply chain expected to begin production of the smaller iPad at the end of the second quarter of 2012.

The report should, however, be taken with some degree of skepticism, as the Taiwanese industry publication has a mixed track record with Apple predictions.

Rumors of a 7-inch iPad were supposedly laid to rest when late Apple co-founder Steve Jobs proclaimed such a screen to be “too small to express the software.” However, reports of the device were resurrected this fall after the announcement of Amazon’s Kindle Fire, which some have touted as the first credible challenger to the iPad.

Ticonderoga securities analyst Brian White claimed in October that he had heard rumblings of a so-called “iPad mini” arriving next year, though he believed the device would be cheaper and not necessarily smaller. Also in October, DigiTimes reported that suppliers were gearing up to ship 7.85-inch screens to Apple.

For its part, Amazon may not even stick with the 7-inch size for its Kindle Fire. Recent reports have suggested that the company is looking to expand to an 8.9-inch model. The Fire does appear to be on its way to success, as Amazon revealed on Thursday that millions of the device had been sold, though it declined to provide specific figures.

Stay tuned for additional details as they become available.