The screens were reportedly purchased from LG Display and AU Optronics, according to Taiwan's Economic Daily News (via Google Translate). The new display will allegedly feature the same resolution as the current 9.7-inch screen on the iPad 2, and the smaller iPad is expected to ship in early 2012.
The new form factor and assumed cheaper price are said to be an effort to counter Amazon's recently announced Kindle Fire. That Android-powered hardware will cost $199, or less than half the price of the $499 16GB Wi-Fi-only iPad.
The report said Apple is also hoping a smaller iPad model will help the company gain even more traction in emerging markets across the world, where a lower entry price would be welcomed. It noted that high tariffs make Apple products very expensive in mainland China.
Tuesday's report is the second in less than a week that has suggested Apple is exploring a new, cheaper iPad for release in the coming months. Last Wednesday, analyst Brian White with Ticonderoga Securities said he has heard that Apple will release a less expensive -- but not necessarily smaller -- iPad in the first few months of 2012.
A year ago, Steve Jobs, the late co-founder of Apple, criticized rivals building 7-inch tablets, saying that screen size is too small for users. He quipped that manufacturers of those devices would need to ship sandpaper with their 7-inch tablets, so users can file down their fingers to the point where they can hit smaller targets on the screen.
Even after those comments were made, claims of a new device with a screen size somewhere between an iPod touch and an iPad have persisted. But Jobs said he feels a screen size of about 7 inches is "too small to express the software," as evidenced by Apple's own user testing.