Is Apple Working on a 7-Inch Screen iPad?

Apple (s AAPL), perhaps worried about competition from the Android (s goog) camp, may be looking to develop a new version of iPad, this one with a 7-inch screen. It would bring such a device to market some time in 2011, according to a research note put out by Rodman & Renshaw analyst Ashok Kumar this morning. He writes that the second generation iPad will have both front and rear facing cameras to make it easier for video conferencing on the device, using Apple’s Facetime.

So why a second a generation iPad with different specifications this quickly? I have a theory.

In the early days of the iPhone, the lack of competition allowed Apple to build up a sizable lead over others. However, the emergence of Android has started to take away some of the growth opportunities from Apple, as it has brought more options for consumers. Competition has come early for the iPad. Samsung recently launched its Galaxy Tablets in partnership with four major U.S. carriers, and this is likely to put pressure on iPad sales.

A typical upgrade from Apple would involve Cupertino retaining the same display size for a few generations, like they did with the iPhone. In this case perhaps, the 7-inch tablet can lower the bill of materials and make it easier to source components like the display, which, in turn, allows Apple to stay competitive in the emerging tablet market.

Perhaps that’s why a new form factor for the second generation iPad makes sense. What do you guys think?

Related GigaOM Pro Content(sub req’d): Report: The Consumer Video Chat Market through 2015