A Taiwanese newspaper reports that Apple (AAPL) is preparing a smaller iPad with a 7-inch screen, one that could launch by Christmas, according to PC World.

The current iPad has a 9.7-inch screen (measured diagonally) and weighs 1.5 pounds. A smaller iPad would weigh less and cost less than the original model. Plus, it would be even more portable.

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Why would Apple go this route? As Business Insider points out, it wants to own the tablet market. Other rivals are quickly developing their own tablets (and will probably sell those for less), and Apple is trying to extend its lead with different sizes and pricing options.

Apple isn't confirming the news, so don't put the mini-iPad on your Christmas list just yet. But there are two facts going in favor of this rumor: First, the same newspaper, Economic Daily News, correctly said Apple was making a tablet when others said it would be a netbook, PC World says.

 

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Second, another Taiwanese newspaper reported last week that manufacturers there, such as Chimei Innolux, had received orders to make a 7-inch iPad for Apple. Compai Electronics will reportedly assemble the device once other companies make the components.

Nearly everyone is aware of the $500 iPad now, writes CrunchGear, and a smaller model in the $300 to $350 range "could be this year's hot gift." If not, at least we'll have the upcoming Nintendo 3DS out by Christmas.

But a lot of things would have to happen relatively quickly for a new iPad to be available in decent numbers by Christmas. Apple has a fall product event in the works (although the exact date isn't known yet) and could clear up the rumors then.

Apple sold 3 million iPads in the first three months -- far more than most analysts expected -- and reports have said sales are holding steady.

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