Amazon Eyes Texas Instruments' Tablet, Smartphone Chip Business

Amazon is said to be in talks regarding the purchase of Texas Instruments, the chip maker that supplies the processors for Amazon's Kindle Fire.

Amazon is deep into talks about buying chip maker Texas Instruments, Israeli newspaper Calcalist reported Oct. 15. TI makes processors for smartphones and tablets, a segment referred to as OMAP, and provides Amazon with the processor for its Kindle Fire tablet

TI officials have said they plan to get out of the highly competitive smartphone and tablet chip business. Like Samsung, Qualcomm, Nvidia and others, TI adds technology to ARM-designed chips, which compete against processors from Intel, which has widened its focus from PCs to tablets and smartphones, and Advanced Micro Devices.

"As communicated in a recent investor event, the smartphone market has become a less attractive long-term opportunity for TI's OMAP [Open Multimedia Applications Platform] and connectivity products, and we are re-profiling our investment accordingly," TI officials said in a statement, adding that the company doesn't comment on rumors. Amazon also declined to comment.

During an investor event, TI officials said that, rather than producing for consumer products, they are considering working in more stable areas, such as with automakers.

Amazon has for some time been rumored to have a smartphone in the works. In July, Bloomberg reported that Amazon was building a phone with China-based Foxconn—which has become known as the builder of Apple iPhones and iPads, though the company works with nearly every electronics maker—and acquiring patents so as to avoid infringement claims.

Fanning such rumors, Amazon also hired Matt Gordon, who for years was in charge of IP licensing at Microsoft.

Hard fact or rumor, the Twittosphere has been chiming in on the deal.

"Amazon interest in Texas Instruments' chip business is bigger than smartphones, it's about owning the supply chain to drive down costs," Tweeted Brian Sozzi, a chief equities analyst with NBG Productions.

Technology Business Research (TBR) analyst Jillian Mirandi Tweeted, "#Amazon is taking over the world—in negotiations to buy Texas Instruments #mobile #chip business!"

The latter prompted TBR Engagement Manager Greg Richardson to reply, "Very interesting play because #Amazon has differentiated with #content but the #TI buy would bring it to the #technology layer."

He followed up, "A little back to the future, though, with most vendors expect #IBM are not developing tech in-house. Interesting to see."

With a smartphone, Amazon is expected to follow a model it started with the Kindle Fire—a tablet that joined the market in November 2011 and cut ahead of a long line of competitors to become the second-best-selling tablet during the quarter, after the Apple iPad.

Amazon priced the Kindle Fire at $199, which analysts, after teardowns of the hardware, have estimated to mean that Amazon incurs a $2 loss on each unit. The retail giant, which now also sells songs, movies and television shows, is expected to instead make its money on software side. One early report estimated that Amazon was earning an average of $136 in content per Kindle that it sold.

TI's OMAP business could generate revenue of $650 million this year, Deutsche Bank analyst Ross Seymore has estimated, according to Reuters. Based on that, Seymore wrote in an Oct. 15 research note, Amazon could be looking at a price tag between $500 million and $700 million.

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