In a note to investors today, Sterne Agee analyst Shaw Wu said that it was a “question of when, not if” Apple would release the rumored 7.85-inch iPad. He believes it would make strategic sense for it to expand its tablet family.

“A smaller iPad would be the competition’s worst nightmare,” he explained. Apple’s competitors are already having trouble beating the company on price at $399 and $499. They wouldn’t stand a chance against a $299 tablet…

The only thing the analyst doesn’t know is when Apple will pull the trigger on the so-called “iPad mini.”

“We do not sense that the release of an iPad mini is imminent and quite frankly, exact time is difficult to predict. However, we do believe it makes both fundamental and strategic sense for AAPL to address at some point.”

Outside of Wu’s predictions, we’ve seen plenty of evidence that suggests Apple is working on a smaller tablet. It reportedly has a 1024 x 768 display and would undercut the current iPad 2, which starts at just $399, in price.

[AppleInsider]