Amazon May Buy TI Chip Biz to Scratch Phone Itch

Amazon is reportedly in talks to buy the mobile chip division of Texas Instruments in a move that could push the online retailer further into the hardware business.

The reports fit in with Texas Instruments’ announcement last month that it would shift the focus of its chip business away from mobile products and toward larger, more stable and lucrative clients such as automobile makers.

Texas Instruments has had some challenges and exited some business lines recently, Jim McGregor, founder and principal analyst at Tirias Research, told the E-Commerce Times. “At the same time, it has invested in its analog products. So, at least the company is focusing on areas where it seems to have a competitive advantage — analog and embedded applications.”

The companies have not confirmed reports about acquisition talks. Neither Amazon nor Texas Instruments responded to our requests to comment for this story

Amazon’s Bigger Plans?

If Amazon does purchase TI’s mobile application chip business, it could possibly make a bigger push into the hardware market. The company already has a foothold in the affordable tablet market with Kindle Fire. Having chip manufacturing capabilities could help it launch a smartphone to take on competitors such as Apple and Samsung.

“If true, Amazon clearly has big plans to develop a whole range of products above and beyond today’s Kindle,” Jim Turley, founder and principal analyst at Silicon Insider, told the E-Commerce Times. “It wouldn’t make sense to acquire a whole chip division just to supply Kindle. There must be something more in the works. Just as Apple extended its early iPod into the iPhone and iPad, Amazon may be planning to extend the Kindle into a whole range of products that would use these chips.”

In another era, such a move by a retailer may have been unfounded, but with the success of Apple and Google, more tech giants are turning toward that model, said McGregor.

“Historically, staying vertically integrated has put high-tech companies at a disadvantage over time because it is difficult to maintain a lead in every aspect of the value chain,” he pointed out. “However, with the success of Apple, many companies are now considering it.”

Better Stick to Services?t

Simply because it can get into the smartphone market — or beyond — doesn’t mean it should, especially through an acquisition such as TI, said Ben Bajarin, director and founder of Creative Strategies.

“Given Amazon’s business model, being a service-driven one, and their hardware not being a hardware for profit business but a hardware as a service business, I find it hard to believe they would incur such a significant cost as TI’s OMAP mobile processor group,” he told the E-Commerce Times.

The investment in TI — reported to be worth billions — just might not be worth it for a division that strays so far from its core business, Turley noted.

“Can’t they find what they want from the 100-plus other chip companies?” Turley asked. “I’m sure most of them would be happy to provide Amazon with whatever chips the company wants; why do they need the undivided attention of an in-house team? TI’s OMAP chips are nice, but they’re not startlingly unique, so I don’t see any strategic advantage to bringing them in-house or of keeping them out of competitors’ hands.”

Amazon should realize its strategic advantage in being able to pick and choose from a variety of suppliers to design the perfect product, said McGregor, rather than making a long-term investment in TI.

“There are already many competitive suppliers to chose from, which allows Amazon to select the best processor at the time for each new product design” McGregor pointed out. “It also allows the company to differentiate where it really matters in the software, applications, user interface and content. In addition, getting into the processors would require a continued investment to continually produce new designs.”