The Apple rumor mill has kicked into gear again suggesting Apple is planning to release a 7-inch “iPad 2” before Christmas. The Economic Daily reports that a number of Taiwanese companies have won a few component contracts for the device, while Taiwan’s Digitimes newspaper has reported that Taiwanese companies were already starting to assemble it. Adding fuel to the fire is the discovery of a block of code buried deep within iOS4 that apparently queries whether the device is either a CDMA iPhone or iPad 2.

The Economic Daily report says that among the Taiwanese companies to win component contracts is Chimei Innolux, which will supply 7-inch LCD displays with the same IPS (in-plane switching) technology found in the original 9.7-inch iPad, and Cando Corporation, which will supply the touchscreen technology. Compal Electronics, a Taiwanese company that handles the production of laptops for a variety of companies including Dell, Toshiba, HP and Compaq, has apparently been chosen to assemble the device.

Additionally, an “Apple source” has tipped off the folks at Boy Genius Report (BGR) about a block of code in iOS4 that supposedly queries the device, and if it is a CDMA iPhone or iPad 2, the device will auto-activate, bypassing the need for iTunes. This is apparently to allow products to be field tested by carriers or partners without having to activate the devices. The source told BGR that such code has previously appeared before other major iPhone/device releases and is removed right before launch.

With Apple’s well-known love of secrecy, it’s no surprise that none of the Taiwanese companies mentioned in The Economic Daily and Digitimes reports, or indeed Apple itself, has confirmed the rumors. However, if the reports prove to be true, the release of a smaller and presumably cheaper iPad might appeal to those that find the current iPad just out of their financial reach.

Via BGR and Computerworld