Apple is poised to launch an iPad mini as figures show the tech giant's tablet market share in the US fell by 29 percentage points in the past year.
The California-based company has sent out invitations to an event next week, teasing "We've got a little more to show you."
Commentators speculate the event will launch a smaller, cheaper model of the iPad.
In 2011, 81 per cent of tablet computers owned in the US were Apple iPads, but in 2012 that number fell to just 52 per cent, according to a report from the Pew Research Centre and the Economist Group.
Apple's dominance of the tablet market is more robust in Australia, but it has also suffered, says research from technology analyst firm Telsyte. In 2010, the iPad's first year of release, Apple enjoyed a market share of 90 per cent in Australia. This has since declined to about 75 per cent.
Analysts say the decline is due to increased competition from smaller, more affordable seven-inch tablets running Google's Android operating system.
"The iPad mini is coming at a time when Apple is finding increasing competition, particularly in the budget device area," Telsyte research director Foad Fadaghi said.
Meanwhile, overall tablet sales continue to grow rapidly in Australia. Sales exceeded 1 million units in the first half of 2012, and are expected to pass 2.3 million by the end of the year, according to Telsyte research.
Telsyte estimated that 15 per cent of the population own a tablet PC, a figure expected to double to 30 per cent in 2013.
"Within four years half the population will be relying on such a device for a lot of their computing needs, covering education, entertainment, productivity and other applications,” Fadaghi said.
In another challenge to Apple's dominance, Microsoft today announced that the base model of its new Surface tablet will go on sale next Friday for $559, a price comparable to the current iPad.
Despite this, Fadaghi expects the iPad mini to help maintain Apple's market share for the time being and even bolster its share price. "Our expectation is that we'll see a reversal of the share price decline over the last couple of weeks," he said.
Rumours of an iPad mini have been swirling for months despite the late Steve Jobs declaring in an October 2010 call with analysts that seven-inch tablets were "dead on arrival" because they are "too big to compete with the smartphone and too small to compete with the [9.7-inch] iPad".
"The 10-inch screen size is the minimum size required to create great tablet apps," said Jobs.
Times have certainly changed since then and companies such as Google and Amazon have had significant success with their seven-inch Nexus 7 and Kindle Fire tablets, respectively.
By January 2011, before the introduction of the Fire and Nexus 7, the view at Apple appears to have drastically changed when executive Eddy Cue picked up a seven-inch Samsung Galaxy tablet.
"I believe there will be a seven-inch market and we should do one," Cue wrote to other executives in an email released during the patent infringement battle with Samsung.
"I expressed this to Steve several times since Thanksgiving and he seemed very receptive the last time. I found email, books, Facebook and video very compelling on a seven-inch."
In 2003 Jobs said Apple had no interest in mobile phones or tablets and no one wanted to watch video on a small iPod display. In 2008 he said people didn't read any more, then went on to launch the iBookstore.
At a conference earlier this year Cook said Jobs would regularly argue a polar opposite position to the one he had the day before. "This is a gift, because things do change, and it takes courage to change. It takes courage to say, 'I was wrong.'"
with Asher Moses