Amazon Kindle Smartphone Coming in Late 2012

With (NAS: AMZN) now shipping its Android-powered Kindle Fire tablet, Citgroup's research department reports the digital retail giant will introduce its own smartphone in late 2012, further accelerating the company's push into the mobile multimedia segment.

"Based on our supply chain channel checks in Asia led by Kevin Chang, Citi's Taipei-based hardware research analyst, we believe an Amazon Smartphone will be launched in 4Q12," writes Citigroup analyst Mark Mahaney. "Based on our supply chain check, we believe FIH is now jointly developing the phone with Amazon. However, we believe that Amazon will pay NRE (non-recurring engineering fees) to FIH but the device and multiple components will actually be manufactured by Hon Hai's TMS business group (the same business group that makes Amazon's E-reader and the 8.9" Amazon tablet). We believe the smartphone will adopt Texas Instruments' OMAP 4 processor and is very likely to adopt QCOM's dual mode 6-series standalone baseband given QCOM has been a long-time baseband supplier for Amazon's E-reader."

According to Citigroup, the Amazon smartphone will cost between $150 and $170 to manufacture, and Mahaney believes the company will sell the device for close to that price. "For a normal brand like HTC, they need to price the product at $243 to make 30 percent gross margin," Mahaney states. "If Amazon is actually willing to lose some money on the device, the price gap could be even bigger." Mahaney suggests the phone will run Google's (NAS: GOOG) Android as well, noting Amazon will be required to pay Microsoft (NAS: MSFT) an "OS royalty" -- Microsoft has recently inked a series of licensing agreements with manufacturers building Android-powered devices.

The Kindle Fire tablet offers consumers access to the Amazon Appstore for Android, the Kindle e-book catalog and the Amazon Instant Video and Amazon MP3 digital storefronts -- it also touts a customized browser, Amazon Silk, that interfaces with Amazon's EC2 cloud server to accelerate the data consumption experience. The WiFi-only tablet is perhaps most notable for its price: $199 -- more than half off the price of Apple's (NAS: AAPL) cheapest iPad, making it clearer than ever that while Apple relies on digital content to sell its hardware products, Amazon is depending on affordable Kindle devices to drive content sales.

The Citigroup report also appears likely to renew speculation that may look to acquire the webOS operating system, which Hewlett-Packard absorbed with its $1.2 billion acquisition of Palm in April 2010 and scrapped this past August. Dealing for webOS would enable Amazon to build a mobile platform to its exact specifications, further differentiating its future device efforts from competing Android-based products while avoiding licensing deals with the likes of Microsoft.

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