Report: Smaller iPad coming later this year

It’s been rumored for years. Is Apple(s AAPL) finally set to sell a smaller iPad? That’s what Bloomberg says it has heard from two different sources.
Apple is planning to introduce an iPad with a screen measuring “7 inches to 8 inches diagonally, less than the current 9.7-inch version,” says the report published Tuesday. However, this iPad won’t have a Retina display, according to one of the sources.
It could be introduced by the end of the year, possibly in October.
It’s true that many in the tech world have been clamoring for a smaller iPad for years — my colleague Kevin Tofel, for instance. But it’s not necessarily clear how much profit Apple could squeeze from a device that would basically be hobbled with fewer features than its best-selling 9.7-inch tablet. Apple’s put a lot of money and energy into positioning the iPad’s huge, bright and crisp screen as essential for a tablet. Why go smaller and duller? Competition.
The iPad has sold remarkably well as is. It is the only tablet of consequence on the market, two years after the debut of the original. And the introduction of its super high-definition Retina display from the iPhone to the iPad (and recently the MacBook Pro) is starting to convince people that a high-def display is a must have in all gadgets. A chief benefit of going smaller and with a non-Retina display would be to get the price down to a competitive level for that size device, somewhere around $200.
It’s all tied to its competitors. The most compelling reason Apple has for going after the 7-inch category would be to stem any momentum from Google(s GOOG) with its brand new Nexus 7 tablet and Microsoft’s(s MSFT) new Surface, before either manages to get any. Amazon’s(s AMZN)┬áKindle Fire, a 7-inch e-reader tablet, hasn’t been able to steal many sales from the iPad despite its smaller size. But perhaps this is a sign that Apple is taking the Nexus 7 and the Surface seriously.
So seriously in fact, that it could be willing to lose potential profits — they won’t make the same margin on a $200 device as a $400 — just to guard its market share. Apple cares a lot about profit, but it also doesn’t want to lose its dominant grip on a market it largely created. As Steve Jobs once explained about the iPhone: “I think we have to be the best, and I think we have to not leave a price umbrella underneath us.” He meant that when competitors figure out eventually how to mimic your product, you can’t let them undercut you on price, even if it means you end up introducing a new product with less than state-of-the-art features.
In the case of the iPhone, it’s meant Apple has kept older model devices around and sold them either free with contract, or for $99 on contract. Apple has followed a similar pattern with the iPad, keeping older models on sale for $399, which is $100 cheaper than the least-expensive late-model iPad. But clearly Google and Amazon have figured out how to undercut Apple with a $200 tablet.
Perhaps that philosophy about pricing and competition means that when it comes to tablets, Apple has decided that it needs to get smaller in order to get cheaper.