Steve Jobs criticize on 7-inch touch table is not usable, "... 7-inch tablets are going to be DOA, dead on arrival". Read here, here and here.
Is doesn't matter what is the display size, is the software which does matter. Is all about user experience and total solution.
If 3.5 inch display works, the 7 inch display works as well. If without good and usable application, it doesn't work.
If Steve Jobs say 7-inch tablet is no good, then 7-inch tablet is no good. Just joking.
There is a description that strike me, Steve Jobs really knows the competitors well.
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