By Philip Elmer-DeWitt
July 4, 2012

FORTUNE — Rumors that Apple (AAPL) was working on a smaller version of the iPad are nothing new. The
Wall Street Journal
reported back in February that Apple was testing such a thing and Daring Fireball‘s John Gruber gave his insider’s view in an April podcast:

“What I do know is that they have one in the lab, a 7.85″ iPad that runs at 1024 x 768. And it’s just like the 9.7-inch iPad shrunk down a little bit. The apps wouldn’t need to be redesigned or recompiled to work on it — it’s just the iPad smaller.”

But there’s something about Tuesday’s
Bloomberg Businessweek
story that made the spectre seem real. Citing “two people familiar with the plans,” Peter Burrows and Adam Satariano report that Apple intends to launch the thing before the end of the year — perhaps, as countless blogs and rumor sites have suggested, in October. [UPDATE: The
Wall Street Journal
, citing “people familiar with the situation,” reported Wednesday that Apple’s component suppliers in Asia are preparing for mass production in September.]

Why would Apple make a device that Steve Jobs famously described as too small for “great apps … unless your tablet also includes sandpaper, so that the user can sand down their fingers to around one quarter of the present size”?

To cut off the air supply of Google’s (GOOG) Nexus 7, Microsoft’s (MSFT) Surface, Amazon’s (AMZN) Kindle Fire and Samsung’s 7-inch Galaxy Tabs, that’s why.

A smaller, cheaper iPad to shore up the low-end of the tablet market would be, according to Sterne Agee’s Shaw Wu, “the competitors’ worst nightmare.”

That makes sense. Having watched Samsung and Amazon find a market for cut-rate tablets too small for great apps, Apple might be willing to hold its nose and make one it considers good enough to bear the Apple brand. Since Apple invented the category, it might as well own it all.

According to separate set of rumors, Apple is thinking about pricing the iPad’s little sister somewhere between $249 and $299 — $50 to $100 more than the competition — in order to maintain its customary profit margins.

That really sounds like Apple.

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