Apple Inc is working on a smaller iPad tablet with built-in cameras that could ship early next year, according to manufacturers in Asia.

The launch of a new, smaller iPad would expand the iPhone and Macintosh computer maker's portfolio of tablet gadgets that has made waves across the global technology landscape and threatens the laptop market.

Makers of parts of the new iPad are gearing up for a new round of production in the first quarter, these sources said on Friday.

Having different sizes expands the market and makes it appeal to more people, said Kaufman Bros analyst Shaw Wu.

A smaller iPad would be a departure as Apple Chief Executive Steve Jobs has publicly rejected the idea of such a device in October.

Wu said that while Jobs has a history of throwing Apple watchers off the scent of a good rumor -- most famously when he derided the idea of iPods that play videos -- Apple has also worked on many prototypes that never see the light of day.

Apple's iPad resurrected the market for tablet computers since its introduction in January, with nearly 13 million units expected to ship this year. That total could almost triple next year, providing a much-needed boost for a global technology sector struggling with patchy demand.

Touchscreen chip designer Wintek Corp, battery maker Simplo Technology Co Ltd and AVY Precision, a privately held maker of covers for electronic products, are among suppliers for the next batch of iPads, four people familiar with the situation said.

Two sources said the suppliers were preparing for a new round of production in the first quarter for components previously supplied for the original iPad, while two other sources said they were ramping up for a new iPad.

One source said the revamped model would feature cameras on the front and and back of the device, enabling Apple's Facetime video conferencing service. Another source said it would be slimmer, lighter and have a better resolution display than the first iPad.

A separate supply chain source said Apple was preparing a significantly smaller iPad that is almost half the size of the current model. The current iPad has a 9.7-inch screen.

In October, Jobs dismissed the idea of a 7-inch iPad, saying the screen would be too small to express the software.

INVESTMENT THEME

Investing in Apple-related shares is going to be a major theme for most of next year, said Bevan Yeh, a fund manager at Prudential Securities investment Trust, who manages about T$7 billion ($230 million) and owns supplier shares.

Apple is still the main driver on most technology products, and this will help push the earnings of its suppliers even more in 2011, Yeh said.

Apple is expected to ship 12.9 million iPads this year, with shipments rising to 36.5 million in 2011, research firm iSuppli said in July, reflecting an 84 percent share of the tablet PC market.

All the people familiar with the supply chain situation declined to be identified because they were not authorized to speak to the media on the topic and because of Apple's obsession with secrecy.

Component makers generally do not know what the finished product will look like because they are only responsible for manufacturing one part before passing it on for assembly.

Camera module makers Genius Electronic Optical Co Ltd and Largan Precision Co Ltd were also starting new supply deals with Apple, two sources said, but neither could confirm for which product the modules were intended.

The introduction of a revamped iPad in the first half of 2011 would also be in line with Apple's previous practice, with small changes made to its products about once every year. The original iPad was launched on January 27 this year.

It makes sense for these suppliers to begin delivering their goods in February, said Steven Tseng, an analyst at RBS in Taipei. I think Steve Jobs will announce the new product in January, and we should see the new product hitting shops in about April.

Spokespeople at all five companies either declined to comment or were not immediately available. An Apple spokeswoman also declined to comment.

Shares in Wintek rose 5.3 percent in Taipei, Genius was down 2.1 percent, while Largan and Simplo were little moved.

Besides Apple, tech companies such as Dell Inc, Acer Inc and BlackBerry maker Research in Motion Ltd have jumped on the tablet bandwagon, having unveiled their own versions of the mobile device.

I expect to see more tablet PCs being pushed out in the second half of next year, said Bamboo Lin, an analyst at SinoPac Securities in Taipei.

Sales of the iPad will still be good next year, but I expect those running on Google's Android system to have the advantage in the long run, just like what's happening with smartphones now.

The iPad is expected to account for about 70 percent of the 60 million tablet PCs that will be shipped in 2011, SinoPac Securities said in a note.

(Reporting by Kelvin Soh, Argin Chang and Melanie Lee. Additional reporting by Hyunjoo Jin in Seoul, Gabriel Madway in San Francisco and Sinead Carew in New York. Editing by Lincoln Feast, Derek Caney and Robert MacMillan)

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