iPad 3 with Retina display, new device sized between iPad and iPod in Apple's pipeline
Expanding the definition of tablet
Apple's iPod touch is currently not counted as a tablet (not even a "media tablet") by market research firms such as IDC and Gartner, but that practice would be harder to maintain if Apple were to ship a larger version of the device with the same 960x640 resolution.
Other companies, including Dell and Samsung, have delivered devices with lower resolutions on "tweener" sized tablets, which are counted as "media tablets," even though they have found minimal interest among consumers.
A new, larger iPad touch model could potentially deliver an additional competitor to the low end tablet market currently represented by the Samsung Galaxy Tab and Dell Streak, while still remaining well differentiated from the more sophisticated iPad in order to avoid direct competition.
Such a strategy would resemble Apple's efforts to expand the market of the original iPod with the iPod mini, a product which targeted the lower end of flash RAM music players while leaving the iPod to service its original market as a high capacity device.
A big iPod touch would also help differentiate the general purpose, full sized iPad from other smaller, low end tablet devices, forcing them to compete against Apple's media-centric iPod touch rather than being drawn into comparison next to iPad. Both IDC and Gartner group include media-centric tablets as small as 5 inches in the same category as the iPad while completely ignoring the tens of millions of iPod touch devices Apple already sells.
An iPod-branded small tablet strategy would also explain why Kuo cited a delivery target of the second half of 2011, likely coinciding with Apple's fall iPod event rather than being connected to the firm's spring launch of iPad 2 or the summer debut of iPhone 5.
At the launch of the original iPod touch, Apple worked to differentiate the new model with a unique physical design and limited software features compared to iPhone. While the iPod touch continues to be styled as uniquely different than iPhone, Apple has since relaxed its artificial limitations related to functionality, cultivating the product with a focus on gaming. This has resulted in iPod touch sales helping to support the iOS development platform, an element missing from most other smartphone platforms.