By LORRAINE LUK And JESSICA E. VASCELLARO
Apple Inc. is working with component suppliers in Asia to test a new tablet computer with a smaller screen, people familiar with the situation said, as it looks to broaden its product pipeline amid intensifying competition and maintain its dominant market share.
Officials at some of Apple's suppliers, who declined to be named, said the Cupertino, Calif., company has shown them screen designs for a new device with a screen size of around eight inches and said the company is qualifying suppliers for it. Apple's latest tablet, the iPad 2, comes with a 9.7-inch screen. It was launched last year.
Reuters
The Apple Store in Shanghai earlier this year.
One person said the smaller device will have a similar-resolution screen as the iPad 2. Apple is working with screen makers including Taiwan-based AU Optronics Co. and LG Display Co. of South Korea to supply the test panels, the person said.
Apple, which works with suppliers to test new designs all the time, could opt not to proceed with the device.
An Apple spokeswoman in California declined to comment.
The move comes as Apple is preparing to announce a new iPad in early March, according to people familiar with the matter. That device is expected to have a higher-resolution screen than the iPad 2 with a similar screen size, according to people familiar with the matter. A version will run on fourth-generation wireless networks from Verizon Wireless and AT&T Inc.
A smaller tablet device would broaden Apple's portfolio and could help it compete with rivals such as Samsung Electronics Co. and Amazon.com Inc. It would also begin to emulate the strategy it took for its iPod music player, which it released in a number of shapes and sizes over time. The company has taken a different tack with its iPhone, releasing one design at a time.
Analysts said a tablet with a smaller screen would help Apple expand its market share in the increasingly competitive market.
Diana Wu, an analyst at Capital Securities in Taipei, says that consumer demand for Samsung's 5.3-inch Galaxy Note and Amazon's 7-inch Kindle mean "consumers want a tablet that is smaller than the existing 9.7-inch iPad." "IPad's features are good enough, but pricing would be an important factor in the mass market, especially in big emerging markets like China and India," she said.
The iPad represented more than 61.5% of world-wide tablet shipments in the third quarter, down from 68.3% in the second quarter, according to market researcher IDC.
Samsung, which supplies Apple with key components such as memory chips and processors used in iPads, sells its Galaxy Tab iPad competitor in three screen sizes: a seven-inch, an 8.9-inch and a 10.1-inch.
Amazon.com's Kindle Fire has a seven-inch screen size and is priced at $199, well below the iPad's entry-level price of $499.
Apple has long contemplated different tablet designs, according to people familiar with the matter. But it had indicated it was wedded to the iPad's current size.
In October 2010, Steve Jobs, Apple's late co-founder and chief executive, criticized smaller tablets, saying the iPad's 9.7-inch form was "the minimum size required to create great tablet apps."
Apple, like many other big personal-computer and consumer-electronics brands, doesn't actually make most of its products. It hires manufacturing specialists—many of which are from Taiwan and have extensive operations in China—to assemble its gadgets based on Apple's designs.
They use parts from other outside suppliers, many of which also are from Asia. The arrangement frees Apple and its fellow vendors from running complicated, labor-intensive production lines, while the ability of Taiwanese companies to slash manufacturing costs helps cut product prices over time.
Apple, facing growing scrutiny about working conditions in its supply chain, Tuesday continued to combat the criticism.
Reuters
Apple Chief Executive Tim Cook
Apple CEO Tim Cook , appearing at a Goldman Sachs technology conference in San Francisco, said the company takes working conditions very seriously. "The supply chain is complex. We believe every worker has the right to a safe working environment. Apple's suppliers must live up to this to do business with Apple," he said.
Mr. Cook said Apple is constantly auditing facilities. At the beginning of the year, he said, Apple collected weekly data on over a half a million workers in its supply chain. Apple will now be reporting its audits on a monthly basis on its website, which Cook said is unprecedented in the industry.
In the quarter ended in December, Apple hit new sales and profit records based on runaway holiday demand for the iPhone and iPad.
The company's share price has climbed in the wake of those results, closing above $500 a share for the first time Monday.
—Jung-Ah Lee in Seoul contributed to this article.Write to Lorraine Luk at lorraine.luk@dowjones.com and Jessica E. Vascellaro atjessica.vascellaro@wsj.com
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