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 market for 7in tablets has expanded in recent months with devices from Huawei, Motorola and Lenovo, among others.

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