Stirring the iPad speculation pot this week is a report from Digitimes, the Taiwanese tech site that relies on reports from Asian parts manufacturers to puzzle out the inner workings at Apple.

Digitimes has a spotty record when it comes to Apple predictions, but according to the report, Apple’s preparing to roll out a 7.85-inch iPad in 2012. Citing unnamed “sources in the supply chain,” the site reports that the rise of the Kindle Fire and smartphones with larger screens, Apple is moving into a form factor that was famously spurned by late co-founder Steve Jobs.

Jobs once said on an earnings call that 7-inch tablets should come with sandpaper to help consumers modify their fingers to fit the screen size, but the report indicates that the smaller tablet could come by the end of 2012.

This isn’t the first time we’ve heard rumors about an “iPad mini,” though analysts have said that the only thing smaller about the next iPad could be its price. In October, analyst Brian White of Ticonderoga suggested that Apple may be looking at releasing a tablet in the “mid-to-high $200 range,” which would put it in closer competition with bargain tablets such as Amazon’s Kindle Fire. Right now Apple is all but dominating the high-end of the market, while Amazon and others are beginning to see the potential of cheaper tablets.

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