NEW YORK ( TheStreet) -- Apple ( AAPL - Get Report) is gearing up for production of a smaller second-generation iPad to be launched in early 2011.

Apple's plans call for an iPad 2, which will be a 7-inch touchscreen tablet with a front-facing VGA camera and a 1-megapixel rear camera targeted for a March arrival, says Rodman Renshaw analyst Ashok Kumar, who has talked to Apple's supply and manufacturing partners.
Apple iPad

The details of the iPad 2 help confirm recent rumors that Apple was shrinking the popular iPad to defend its position against a wave of smaller new tablets like the Dell ( DELL) Streak (a 5-inch device) and the Samsung Galaxy Tab (7 inches). But unlike earlier reports that called for a new iPad in time for the holidays, the new information puts the arrival closer to spring.

The iPad 2 is being made by Pegatron, the Taiwan contract manufacturer that is also assembling Apple's CDMA iPhone, which is expected to appear at Verizon ( VZ - Get Report) early next year, says Kumar.

Apple's decision to introduce a smaller, presumably cheaper follow-up to the original iPad is a bit puzzling. Clearly it signals the possibility that Apple sees a threat to its tablet franchise at the lower price levels. But Apple may also want to shrink the device so it doesn't cannibalize its notebook sales.

The news of the iPad 2 comes less than a week after Samsung unveiled its Galaxy Tab, a touch-screen device that will arrive at Verizon, Sprint ( S - Get Report), AT&T ( T - Get Report) and T-Mobile in the coming months.

--Written by Scott Moritz in New York.

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