Microsoft announced its first lineup of tablets in June 2012, which started hitting the shelves in October 2012. Now recent rumors indicate that the company is planning on a 7-inch tablet that will go in production toward the latter part of this year.

Wall Street Journal (WSJ) cites sources close to Microsoft and reports that the company is planning on a new lineup of Surface tablets, including a smaller 7-inch tablet.

"One person familiar with Microsoft's product plans said the 7-inch tablets weren't part of the company's strategy last year, but Microsoft executives realized they needed a response to the rapidly growing popularity of smaller tablets like Google Inc.'s 7-inch Nexus, which was announced last summer, and the 7.9-inch iPad Mini introduced by Apple Inc. last October," reports WSJ.

According to IDC research, half the tablets shipped in Q4 2012 were less than 8 inches. The Nexus 7 and iPad mini are the most popular smaller tablets in the industry and their popularity has increased the demand of smaller tablets on the market.

Previously, Microsoft's strength lay in the PC and the laptop segment; however, with the decline in the PC and laptop market, the company will have to find another area to establish its stronghold and the expanding tablet market may seem attractive to Microsoft.

Microsoft's venture in the tablet market does not seem to be as successful as the company planned. The premium price tag of the Surface RT and the Surface Pro is one of the key reasons why the tablets have not reached the hands of many tablet users. A lower-cost tablet, probably a 7-inch tablet or a wider range of devices, may help the company to capture the interest of many users who want to experience Windows tablets.

Microsoft has not confirmed that it is working on a smaller tablet so it seems we will have to wait until the company announces a smaller tablet.