Microsoft is reportedly working on a new, smaller Surface tablet, set to appear next year. NPD DisplaySearch Richard Shim told CNET that the new tablet should enter mass production in the first quarter of 2014, in “pretty significant” volume.

The tablet is supposed to use a 7.5-inch panel with 1400x1050 resolution, which translates into 233ppi and compares very well to the Nexus 7 and iPad mini. However, by the time the new Surface appears, it will have to compete with second generation Google and Apple offerings.

This is not the only Surface rumour out there. Some punters claim Microsoft will roll out two new Surface tablets, in sizes between 7 and 9 inches.

It is still too early to talk about the price, but CNET’s Brooke Crothers reckons $399 is Microsoft’s target. It sounds a bit steep, as the iPad mini starts at $329 and the Nexus 7 can be picked up for just $199.