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I don't buy into this kind of conspiracy thinking.

Apple builds more products than it releases. It's entirely possible (if not probable) that Apple developed a 7" prototype. Just like I'm sure there's been a CDMA iPhone prototype. That means nothing however. Just because there is/was a prototype doesn't mean there will be a product.

I believe the 7" competitors come down to two things:

1. The competitors might feel like they need to differentiate themselves from the iPad; or, more likely,

2. Apple has tied up the world supply of 10" capacitative touch screens so the competitors needed to go for parts they could get.

Unfortunately a lot of these Apple rumours are started and propagated by people who simply don't understand how Apple operates or are simply link-baiting.

On the outside it is of course impossible to know. But if you listen to Steve Jobs speak, you see he has healthy sense of humor. I would guess if Apple did feint in the 7" direction earlier this year, Steve probably got a big kick out of now slamming competitors for following. Probably not as big a kick as he got from his comments about the PC being the "truck" to the iPad "automobile" that only farmers will still use, after in 2007 in his joint interview at All Things Digital with Bill Gates when he stated that PCs and mobile devices would coexist in a PC-centric ecosystem, but fun nonetheless. By 2007 the iPhone design was basically complete as were Apple's plans to supplant the PC.

In this earnings call, Jobs basically ranted about how it isn't Open vs Closed that is important. This is probably aimed at solidifying the competition's commitment to an Open system and making them less likely to switch to Closed and "admit Apple was right", when the "Closed" nature of Apple's devices is a critical competitive advantage of the Apple platform.

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