According to the back office chatter, Apple is working on a blown up iPhone display and a shrunken iPad. An insider speaking to The Korea Times asserted Apple is developing iPhone 5 (no surprises here) and engineering a smaller version of its 9.7-inch iPad. According to the IDG news service which translated the original article from Korean, a smaller iPad – referred to as the iPad mini – will sport a 7.35-inch display.

If true, iPad mini should be a bit larger than Amazon’s seven-inch $199 Kindle Fire tablet scheduled to launch tomorrow. Apple and LG Display are reportedly negotiating a $1.1 billion deal for a long-term supply of display parts for iOS devices from 2012 through 2016:

A meeting between Apple and LG Display is reportedly due to take place in the next few days and one of the topics of conversation will be Apple’s plans to introduce a 7.35in tablet.

The report corroborates a UDN story a month ago mentioning both LG Display and AU Optronics as sampling 7.85-inch displays for iPad mini. The time could be right for a smaller iPad as Goldman Sachs reported this morning that demand for Apple’s tablet could be fading ahead of the crucial holiday shopping season and, more importantly, in the wake of the more affordable (and smaller) tablet offerings from Barnes & Noble and Amazon.

Let’s not forget other vendors who are gearing up to release an avalanche of Android 4.0 Ice Cream Sandwich tablets early next year. Amazon is understood to be close to releasing an 8.9-inch tablet later this year and has reportedly commissioned contract manufacturer Quanta Computers to build a Kindle Fire successor planned for the second quarter of 2012.

The unnamed executive cited by the Korea Times article called for a four-inch iPhone 5 (not unheard-of) with the same 960-by-640 Retina Display pixel resolution. The last bit would certainly prove a welcome news for app developers who needn’t cope with another fragmented platform.

As always…

Don’t read too much into this report and apply some skepticism. The same publication last month reported of talks between Samsung chairman and Apple CEO, which proved true. They also claimed Samsung had been dying to persuade Apple to remain their parts supplier beyond 2012 and into 2013-2014. And if this is any indication, a Retrevo survey suggests that the Amazon tablet could be a smash hit this holiday season, both for the attractive seven-inch form factor and low price. Of those planning on buying a tablet, 44 percent would be willing to consider a Kindle Fire over an iPad.

The findings echo Retrevo’s September research which asked folks whether they would consider a then unannounced tablet from Amazon over Apple’s iPad if the former were priced less than $250. A whopping 79 percent respondents said ‘yes’. Riding on the heels of favorable reviews, tomorrow’s Kindle Fire launch boosted Amazon shares which are now worth eight times Apple.

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