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A new report adds fuel to the rumor that will release a new Kindle Fire with a larger screen, rivaling the size of the iPad, later this year.

The report by AllThingsD cites a research note in which a Pacific Crest Securities analyst raises his Kindle Fire sales estimates for 2012 to 14.9 million, from the early 12.7 million, citing his belief that the company will release new 7- and 9-inch models of the tablet in mid-2012. Amazon’s current Kindle Fire has a 7-inch screen and previous reports said Amazon was waiting to gauge the reception for it before making a larger one.

The iPad 2 has a 9.7 inch screen. So what difference does a few inches make? Late Apple co-founder Steve Jobs explained the situation in 2010 when he famously criticized the notion of a smaller tablet.

One naturally thinks that a seven-inch screen would offer 70 percent of the benefits of a 10-inch screen. Unfortunately, this is far from the truth. The screen measurements are diagonal, so that a seven-inch screen is only 45 percent as large as iPad’s 10-inch screen. You heard me right: just 45 percent as large.

If you take an iPad and hold it upright in portrait view, and draw an imaginary horizontal line halfway down the screen, the screens on these seven-inch tablets are a bit smaller than the bottom half of the iPad’s display. This size isn’t sufficient to create great tablet apps, in our opinion.

Apple is expected to announce the next iPad in March, as also reported by AllThingsD’s John Paczkowski yesterday. But will we ever see a smaller iPad? The past statements by Jobs might make it seem unlikely, but Apple is famous for coming out with products that boast features it once dismissed.

My favorite was Jobs’ response to the notion of adding video to the iPod: “You know, our next big step is we want it to make toast, I want to brown my bagels when I’m listening to my music. And we’re toying with refrigeration, too.”

That was in April 2004. Apple released the first iPod with video support in October 2005.

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