Google’s vocal chairman Eric Schmidt gave the Android world something to talk about last month, when he declared to an Italian newspaper that Google was preparing a tablet for the first half of 2012. His actual words were pretty vague; you could take the stance that he was foreshadowing a pure Google “Nexus” device, or that the “we” in question was just Google and a close hardware partner, as Motorola has been for the original DROID and the XOOM. Now DigiTimes reports that the device isn’t a 10-inch iPad fighter as suspected, but a smaller, cheaper device meant to compete directly with popular models like the Nook Tablet and Kindle Fire.

Considering that the cheaper devices are where the vast majority of Android’s growth is coming from in the tablet market, it makes a certain kind of sense. And Google might even be trying to compete with Amazon, which is using Android on the Kindle Fire as an end-run around Google’s direct sales of apps, movies, music and books. Pricing an official “Google-branded” Ice Cream Sandwich tablet at $200 or less would be a great way to expose more consumers to the pure Android experience, and build up a loyal userbase by undercutting Apple. Rumors of a cheaper and/or smaller iPad 3 persist, with a 7-inch model considered a possibility. DigiTimes didn’t reveal its sources, but they proclaim that a March or April release is likely.

There’s a lot to be skeptical about here. First, Schmidt’s words do not confirm a Nexus tablet in any way – this could be just a bunch of wishful thinking by Android fans and investors. Second, Google has reached for the high end with its developer devices thus far: the DROID, Nexus One, Nexus S, XOOM and Galaxy Nexus were all at least as expensive as the other devices in their category, often more so.

That being said, hardware is a loss leader as far as Google is concerned. They want users more than anything, and with the tablet market exploding, they need to hit Apple fast and hard. We will be keeping an ear to the ground for any further rumors, hopefully with some more concrete information coming soon.