Apple is apparently prepping to begin building a 7.85-inch screen version of the iPad some time during the second quarter of 2012. Sources from Apple’s parts suppliers claim the smaller iPad model will ship later in the year, and that an updated version of the current iPad will hit store shelves before the end of the first quarter.

The popularity of Amazon’s new Kindle Fire media reader pushed Apple to go small scale with the iPad, according to DigiTimes.

Parts sources claim LG Display and AU Optronics are providing the 7.85-inch panels Apple needs for the smaller iPad.

Rumors that Apple is working on a 7-inch iPad aren’t new, nor are reports of LG Display and AU Optronics supplying displays. In October, reports surfaced that Apple was testing 7.85-inch displays from those companies, and that those displays offered the same 1024 x 768 resolution as the current 9.7-inch iPad.

While analysts may think Apple should make a smaller form factor iPad, that doesn’t mean the company will, despite the rumors. During an earnings report in 2010, former Apple CEO Steve Jobs said that 7-inch displays were too small for a touch-based tablet and that the iPad’s 9.7-inch screen was the smallest usable size.

Claiming the smaller size isn’t good, however, doesn’t mean Apple isn’t working on a 7.85-inch iPad. The company has previously said a feature isn’t a good idea, then rolled out a product offering exactly that. Mr. Jobs, for example, blasted the idea of including video support on the iPod, then within months released the iPod video.

Since Apple doesn’t comment on rumor or speculation, don’t expect any confirmation of the anonymous parts supplier reports. And since parts suppliers and their interpretation of Apple’s product plans aren’t always reliable, this rumor should be taken with a grain of salt.