Oct 15 Amazon.Com Inc is in advanced talks to buy the supplier of processors for its Kindle tablet computer, Israeli financial newspaper Calcalist reported on Monday, a step toward vertical integration that could portend a push into smartphones.
The report said any deal for the smartphone chip business of Texas Instruments Inc (TI) would probably be worth billions of dollars and could make Amazon, led by founder and Chief Executive Jeff Bezos, a direct rival to Apple Inc and Samsung Electronics Co Ltd, which also design their own chips.
Owning its own chip business could save Amazon money if it plans to sell larger quantities of mobile devices. It could also help Amazon design better products.
"Look at Bezos and what he's trying to build. I think he would consider himself of the Steve Jobs ilk," said Williams Financial analyst Cody Acree. "If it works for Apple then why wouldn't it work as well or better for Amazon?"
TI's processors, essentially the brains in computers, are used in Amazon's Kindle Fire tablet. Bezos underlined TI's strength in the industry at the tablet's recent launch.
For more than a year, speculation has swirled that Amazon could sell its own smartphone but the company has not publicly addressed those rumors.
Texas Instruments has said it plans to move away from the increasingly competitive smartphone and tablet chip business, called OMAP, and Wall Street has speculated it could be sold.
Amazon declined to comment on the report. TI said it does not comment on rumors but said in an email to Reuters on Monday, "The smartphone market has become a less attractive long-term opportunity for TI's OMAP and connectivity products, and we are re-profiling our investment accordingly."
Apple designs the processors for its iPhones and iPads inhouse, alongside engineers working on the company's operating system and other features. Analysts credit that vertical integration with part of the success of Apple's mobile gadgets.
Microsoft Corp agrees. In a break from its traditional business model of licensing operating systems to PC manufacturers, Microsoft this month will launch the Surface tablet, a tablet Microsoft designed itself.
Some analysts questioned whether it would make sense for Amazon to get into the semiconductor business when many smaller and independent smartphone chip makers are struggling.
Gartner analyst Carolina Milanesi said she doubted whether Amazon wants to "become that intimately involved with hardware".
TI's OMAP business will generate revenue of around $650 million this year, Deutsche Bank analyst Ross Seymore estimated. Based on that number, he wrote in a note to clients that the business could sell for $500 million to $700 million.
Acree said a second, more difficult, way to value a potential deal could be based on a estimate of potential future sales volume of Amazon smartphones and tablets built with TI's chips.
TI said last month it would shift its wireless investment focus from products like smartphones to a broader market including industrial clients such as carmakers, where it is hoping for a more profitable and stable business.
Shares of Amazon closed 0.8 percent higher at $244.18 on Nasdaq on Monday, while TI shares ended up 3.5 percent to $28.22.
TI has told investors it would continue to support its customers but its mobile processor business would not invest to the same degree as before in supporting its customers' future plans for tablets and smartphones.