A research note by Rodman & Renshaw analyst Ashok Kumar released on Monday suggets Apple are indeed working on a smaller iPad tablet.

Kumar claims Apple will offer a smaller 7-inch model for release sometime in 2011, possibly as early as the first quarter of next year. Kumar's predictions are reportedly based on conversations with Asian component manufacturers, including Pegatron, which supply Apple with parts for its mobile devices. Kumar also told MSNBC that Pegatron, was assembling 20 million CDMA versions of the iPhone 4 on Apple's behalf, further fuelling rumours of the smartphone being available shortly on US carrier Verizon.

The current iPad comes with a 9.7-inch diagonal screen. The new iPad, would be a similar size to Samsung's newly announced Galaxy Tab, which offers front-and rear-facing video cameras, supports Adobe's Flash and runs on Google's Android.

Kumar suggests the new compact iPad will also offer front-and rear-facing cameras for FaceTime video conferencing and face to face chat, introduced with the iPhone 4, and now available with the new iPod touch introduced earlier this month.

"Apple will be playing catch-up on the videoconferencing features," Kumar said in an interview, quoted by Bloomberg.

Kumar added the decision to produce a smaller iPad could be simply down to price. "Apple might be trying to address a lower price point. They want to stay competitive," Kumar told MSNBC. The cheapest iPad currently costs £429/$499 for the 16GB model for the Wi-Fi only model, while the flagship 64GB Wi-Fi + 3G model is £699/$829.

As for the current iPad: "Maybe it's making a leap of faith they'll discontinue the 9.7 inch model, but they could continue. On the flip side, it's a forecasting logistics nightmare. It's very likely the current generation will eventually sunset. It may not be a hard stop."

Typically, Natalie Kerris, a spokeswoman for Apple, declined to comment on Kumar's research note. In June, Apple announced that it sold its three-millionth iPad, just 80 days after the tablets’s US introduction.

Rodman & Renshaw is billed as a full-service investment bank dedicated to providing corporate finance, strategic advisory and related services to public and private companies.

Apple iPad

Last month, Taiwan's Digitimes newspaper reported that Taiwanese companies were starting to assemble a 7-inch iPad for Apple.

Economic Daily News financial newspaper followed up with a similar story a week later. The Chinese-language newspaper was among the first to correctly report that Apple was making a tablet when other news sources insisted it would be a smaller MacBook style netbook.

Click here for a free digital sample of Macworld’s Complete Guide to the iPad. Packed with tips and tricks, this essential guide gives you the lowdown on all the iPad’s features, plus the top 50 apps you must download.