According to Wall Street Journal, Microsoft is working on a 7-inch Surface tablet

According to the The Wall Street Journal , it seems that a new line of surface tablets are currently under construction in the Microsoft labs. This new series of surface tablets would carry  a 7-inch display, designed especially to counter competitive products with the same dimensions, such as the  iPad mini and Nexus 7.
So far, no information about the characteristics and form factor of this new tablet  is shared, the only  known information is that will go into production in the coming months and start the marketing at the end of the year. This rumor follows the recent modification by the Microsoft minimum hardware requirements for your operating system Windows 8, which now includes devices with 7-inch display with a resolution of 1024 x 768 pixels.
 
If this is confirmed it could reasonably think that the future of Microsoft will be primarily in the tablet market, especially when you consider that the traditional PC is in crisis and has suffered in recent months, a sharp drop in sales of approximately 14% globally

Via