Tesco is preparing to announce an own brand tablet computer under the brand name Hudl in time for Christmas, to compete with Apple, Google and Amazon for devices used for online shopping and video viewing.

Sources in the hardware industry told the Guardian they expect the retailer to offer an 18cm (7in) device, priced to compete with Amazon's updated Kindle Fire and the newest version of Google's Nexus 7, and made by a Chinese manufacturer.

The tablet would contain easy ways to order goods from Tesco and also offer fast access to Blinkbox video-on-demand, which Tesco has controlled since April 2011 and which now has 2.8 million monthly users.

Tablet sales are a booming part of the computer market, while sales of traditional PCs have fallen away: globally, tablets are likely to outsell laptops this year.

"The mind boggles at Tesco getting into this, but you can understand why they would," said Jeremy Davies of Context, which tracks UK and continental technology sales. "It's possible they would look to sell it for about £100, and initially order a few hundred thousand devices."

The move comes after Tesco chief executive Philip Clarke said in June that the group would be scaling back on consumer electronics sales such as flat-screen TVs, a category which he said "quite frankly takes up a lot of space and [doesn't] take a lot of money."

But tablets could be sold online, especially targeting customers who are already Blinkbox customers or identified through its loyalty scheme as likely to be big spenders online.

Tesco laid the groundwork for the move in February when it applied for the Hudl trademark to cover a wide range of goods, including tablets and accessories, screen protectors, internet set-top boxes and wireless speakers.

Context's research found that in the first half of 2013, sales of tablets in western Europe more than doubled compared with the same period in 2012. Sales of PCs fell by 12% in the same period – pointing to tablets as a key way to engage older and younger shoppers.

Benedict Evans, technology and telecoms analyst at research group Enders Analysis, said such a move made sense.

"In the short term, Tesco wants to try to capture some of the DVD, music and book revenue that's leaving their stores and going digital – they own Blinkbox and music and books services."