Mini 5 to 7-inch iPad coming 2011

Word has hit that Apple is planning a smaller, 5 to 7-inch iPad to be released as early as the first quarter of 2011.  Digitimes is reporting this:

“Apple is reportedly scheduling a smaller 5- to 7-inch version of the iPad that is expected to launch as soon as the first quarter of 2011, according to Digitimes Research senior analyst Mingchi Kuo.

Kuo, citing talks with upstream component sources, said Apple’s smaller-size iPad will be priced below US$400 and will target the highly-portable mobile device market and consumers that focus mainly on reading and do not have a high demand for text input.”

5 to 7-inch iPad Coming 2011

I’m perplexed at this rumor.  If Apple is entertaining a smaller iPad, how will it distinguish itself from the iPhone/iTouch?  After all, at 5 or 7-inches, you’re not looking at that much of a size difference.