OEMs have been struggling to compete with the Apple iPad since it was first released two generations ago. By any standard it is safe to say that the iPad owns the large (~10-inch) tablet market globally. There have been dozens of competing tablets appear but none have garnered sufficient sales (or avoided litigation) to be a threat to the iPad.
The small (7-inch) tablet market is another beast entirely with several worthwhile competitors released that are grabbing decent sales. The Nexus 7 from Google is the latest in a group that includes the successful Kindle Fire from Amazon.
What the Kindle Fire and the Nexus 7 indicate is there are enough buyers out there interested in a small tablet if it is cheap enough. There have been quite a few cheap large tablets that have never made a dent in the market like the two smaller tablets.
There are three criteria that set the Kindle Fire and Nexus 7 apart from other cheap tablets: 1) name brand recognition; 2) price; 3) 7-inch form factor. When all three criteria are met buyers have shown they are willing to open the wallet.
Tablet makers should adjust their business plans in the tablet space and go all-in with the smaller tablet. It will be tough to be profitable while meeting the criteria defined, but that's the game. If profits can't be made playing the game as defined than get out and go home.
These criteria are the main reason I'm not sure. While it has a better shot making a profit at the critical $200 price point, that would not leave the typical Apple profit margin behind. That's not the way Apple does business, good supply chain or not.
Sometimes a business has to focus on the only way to make a go of it in a particular sector, and that's the way it is in the tablet business. Companies can continue releasing large tablets but they'll keep doing as well as they have done so far. Or they can move to the only non-iPad tablet market that has been proven by sales and jump on the small tablet train.