Microsoft’s next round of Surface slates may include a competitor to the iPad Mini and Kindle Fire.

The company is reportedly working on a 7-inch Surface tablet, which is expected to go into mass production this year, the Wall Street Journal reports. It’s unclear if this is the same gaming-focused 7-inch Xbox Surface tablet we heard about last year — but I’d wager they’re two separate products.

From what we’ve heard of the Xbox Surface, it’s going to be jam-packed with cutting edge hardware, which means it likely won’t go cheap. At the same time, Microsoft will also need an inexpensive small tablet to compete with Apple and Amazon.

Small tablets (under 8-inches) accounted for half of all shipments in the fourth quarter, according to IDC. Given just how much cheaper smaller tablets tend to be — ranging from $200 for the Kindle Fire and Nexus 7, to $329 for the iPad Mini — they’ll certainly end up taking over much more of the market over the next few years. Microsoft simply can’t afford to wait on developing an inexpensive small tablet.

Additionally, the WSJ notes that Microsoft is still testing a Surface phone, though component suppliers aren’t able to confirm if it will ever be released. We’ve heard a Surface phone could appear this year, especially if Windows Phone 8 fails to catch on with consumers.

Photo: Devindra Hardawar/VentureBeat

Even before Microsoft officially unveiled its Surface tablets, we caught wind of technical specs from a 7-inch gaming tablet called Xbox Surface. Now it appears Microsoft is actually beginning to plan the hardware for the Xbox Surface, reports Tom Warren at the Verge.

Sources tell Warren that the initial leaked specs for the Xbox Surface were accurate, including a 7-inch display running at a 1280 by 720 (720p HD) resolution. But he also notes that the Xbox Surface will include a custom ARM processor and speedy RAM. The initial specs we saw in June called for dual IBM Power PC processors and 5GB of DDR3 RAM.

Microsoft is also keeping the door open for an unannounced Intel processor.

Warren notes that the Xbox Surface is being developed to be architecture agnostic, so Microsoft could potentially go with one of several CPU options. The tablet will be able to perform simple tablet functions like messaging and web browsing, but it won’t run a full version of Windows.

If the spec rumors are true, it’s clear that Microsoft is building the first-ever gaming tablet with the Xbox Surface. The latest-generation iPad and recent Android tablets feature speedy processors and graphics as well, but they’re also built to perform tasks other than gaming. By fine-tuning a tablet for gaming purposes, Microsoft will have something truly unique — and it’ll also be able to tie in the tablet directly with a future “Xbox 720″ console.

Production for the Xbox Surface will be separated from Microsoft’s traditional hardware partners, like Foxconn and Pegatron, Warren says. He’s also heard that the Xbox Surface is being partially developed at Microsoft’s Silicon Valley offices.

Photo: Microsoft’s existing Surface tablet disassembled, by James Pikover/VentureBeat