Rumor holds that Apple is planning to release a 7-inch iPad Mini in October to battle threats from the Kindle Fire and the Google Nexus 7. If the rumor is accurate, the device will come with 8 GB of storage and retail for $299.
This wouldn’t be at all out of character for Apple, and there’s a previous precedent with the old iPod Mini and then the iPod Nano. Steve Jobs famously said that 10 inches was the optimal size for a tablet, but the 7-inch tablet market is doing quite well. I myself have a Samsung Galaxy Tab 7 2.0, and find it quite comfortable to use for long periods of time.
Apple may not let that market go untapped for long.