According to John Gruber, a trusted blogger of Apple rumors and owner of DaringFireball, says that his sources are confirming that a smaller iPad exists in Apple’s labs.
While this doesn’t confirm that a smaller iPad will make it to the public, it proves that Apple has and may still be considering it in the future. The supposed model has a 7.85″ display and would fill the void between the iPhones smaller screen and the iPad’s 9.7″ display.
I feel that this smaller version of the iPad might be appealing to those that view the current iPad as being too large for portability. Also, this model would fit into the market of tablets that are appealing to those interested in reading and e-readers.