Production reportedly begins on iPad 3

It’s a weird sort of Twilight Zone right now with the Amazon Kindle Fire attraction most of the tablet attention and the iPad sitting in the background.

But Apple is not one to sit in the shadows, and according to a new report the company has already begun production on the iPad 3.

Susquehanna Financial analyst Jeff Fidacaro has told that Apple’s supply chains have been ramping up to create 12 million to 14 million iPads, an increase from previous projections that suggests a new iPad is in the mix.

“Since our last month supply chain checks we are now seeing 600,000 to one million iPad 3 builds showing up on the plan for the fourth quarter of calendar 2011. Our previous estimate did not include any iPad 3s,” Fidacaro was quoted as saying.

There have also been rumors of an ‘iPad mini,’ which could be a more direct rival to the low-cost Kindle Fire that is sure to be one of the hottest gift items for the upcoming holiday season.

The iPad will still surely be a hot gift as well, but at only $200, the Kindle Fire is poised to potentially sell more units, which is Amazon’s entire goal. It doesn’t care about profit or margin as long as it can grow a huge user base and then try to upsell them to download digital good and products on the device.

Fidacaro mentioned nothing about a mini iPad, and it’s unclear if Apple plans to launch both a cheap iPad and a true, powerful successor to the iPad 2.