Amazon Eyeing Mobile Chip Arm of Texas Instruments, Says Report

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By VALLI MEENAKSHI RAMANATHAN | October 16, 2012 12:39 AM EST

In a bid to boost its smartphone ambitions, Amazon.com Inc (AMZN) is holding advanced talks to acquire the supplier of chips for its Kindle tablet, Israeli financial newspaper Calcalist reported Monday.

Apparently, the deal for the smartphone chip business of Texas Instruments Inc (TXN) is probably worth billions of dollars and could pitch Amazon in direct competition with Apple Inc (AAPL) and Samsung Electronics (005930), which also designs their own chips.

"It would make sense as the chip is a critical component and Amazon has an existing relationship with Texas Instruments, Ovum analyst Nick Dillon told Reuters.

Earlier, during a conference call with investors Texas Instruments announced its plans to exit the mobile processor division, stating the market was not broad enough for its goals, CNET has reported.

Texas Instruments announced revenue of $342 million from its wireless processor business encompassing Open Multimedia Applications Platform (OMAP) processors, wireless connectivity chips and baseband products. This is in stark contrast to $588 million revenue reported in the previous year for the same period.

Amazon's competitor Barnes & Noble also uses chips from Texas Instruments and it is not clear if Amazon will continue selling chips to competitors post acquisition, CNET has stated.

With Kindle, Amazon has confirmed that it makes no profit on hardware sales, so custom chips could mean cheaper tablets and e-readers, thus helping lower the cost of entry to new customers for ebooks, movies, music, and apps, SlashGear has reported.

Some analysts wondered how the acquisition will favor Amazon especially since several small smartphone chip makers are reporting losses at present.

Gartner analyst Carolina Milanesi said she doubted whether Amazon wants to "become that intimately involved with hardware", according to Reuters.

Reportedly, officials at both companies were not immediately available for comment, while a Texas Instruments spokeswoman declined to comment to Calcalist.

Texas Instruments has assured investors it would continue to support its customers but investments in the mobile application chip to support customers future plans would be curtailed to a large extent.

It appears that Texas Instruments has buckled under pressure from ARM-based mobile chip makers, such as Nvidia and Samsung, CNET has pointed out, adding, as Texas Instruments plans to concede the mobile market, it has commenced expansion into other markets, including the automotive sector.

Apparently, second-quarter financials of Texas Instruments showed that revenue generated through the automotive sector increased during the period.

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