Amazon.Com Inc is in advanced talks to buy the supplier of chips for its Kindle tablet computer, Israeli financial newspaper Calcalist reported on Monday, in what could mark a step in the company's ambitions in the smartphone sector.
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 a direct rival to Apple Inc and Samsung Electronics Co Ltd <005930.KS>, which also design their own chips.
"It would make sense, as the chip is a critical component and Amazon has an existing relationship with TI," said Ovum analyst Nick Dillon.
TI's chips are used in Amazon's Kindle Fire tablet and Amazon CEO Jeff Bezos had underlined TI's strength in the industry at the tablet's recent launch.
"With the trend towards more vertical integration, led by Apple, speculation that Amazon is interested in TI's chipset arm is unsurprising," said Ben Wood, head of research at British wireless consultancy CCS Insight.
But some analysts questioned whether it would make sense for Amazon to spend billions on the business when many smaller and independent smartphone chip makers are reporting steep losses.
TI has flagged its plans to exit the business.
Gartner analyst Carolina Milanesi said she doubted whether Amazon wants to "become that intimately involved with hardware".
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 in Amazon were up 0.8 percent to $244.39 in premarket trade on Nasdaq while TI shares were up 1.9 percent to $27.8.
Officials at both companies were not immediately available for comment outside U.S. business hours. A TI spokeswoman declined to comment to Calcalist.
TI has told investors it would continue to support its customers but its mobile application chip business, which supports features like video, would not invest in supporting its customers future plans for tablets and smartphones to the same degree as before.
(Reporting by Tova Cohen and Tarmo Virki; Editing by Louise Heavens and David Holmes)