There has been a lot of speculation that Apple will be shrinking down the iPad to release a smaller, 7.85-inch model. Adding fuel to that fire is respected Apple blogger John Gruber — the voice behind Daring Fireball — who mentioned on The Talk Show podcast that he’s heard chatter that Apple is testing smaller iPads in its labs.

Gruber said multiple people have told him that the smaller tablets are something the company is “kind of noodling” with, though he said it’s not clear whether it would take the smaller-screened tablets to market. He noted that the smaller tablets would not have the retina-quality display that’s on the new iPad and the iPhone. The tablets in testing, he said, are be about the size of the iPad’s shorter side.

The idea of a smaller iPad may be surprising to Apple fans, given late Apple co-founder Steve Jobs’ opposition to the seven-inch form factor, but cutting down the iPad would help Apple diversify its iPad line in the same way it has its iPod line. Smaller tablets, analysts have noted, might also help Apple in overseas markets — particularly in Asia — where commuters might find the full-sized iPad too cumbersome for daily use. The move would also likely be seen as a way to compete against lower-cost tablets such as Amazon’s seven-inch Kindle Fire.

Thus far, it looks like Apple is content holding on to the top end of the tablet market and letting competitors scramble for the lower end of the price scale, but it certainly couldn’t hurt to have a mid-priced tablet for those who think the iPad is too big for their needs.

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