Is an Amazon Smartphone Waiting Downstream?

On the heels of the apparent success of Amazon’s Kindle Fire tablet, which one analyst estimates will sell more than 5 million units in three months, comes speculation that the online retail giant might come up with its own smartphone next.

Citigroup analysts Mark Mahaney and Kevin Chang have reportedly stated that Amazon will unleash a smartphone on the market in Q4 2012.

Amazon, they state, will sell the device at close to cost.

If Amazon is indeed planning to introduce a smartphone, it would “want to subsidize the device, which will be high-end but low-cost,” Chris Hazelton, research director for mobile and wireless at the 451 Group, told TechNewsWorld.

That’s the same route it’s already taking with its Kindle devices — keeping prices down and making money on the content.

However, whether a smartphone will prove as desirable a delivery mechanism for content as a tablet remains to be seen, Hazelton said.

Amazon did not respond to requests to verify the report.

Smartphone Smoke on the Water

The Citigroup analysts reportedly indicated that Foxconn International Holdings (FIH) is already developing the smartphone jointly with Amazon.

However, the phone and several of its components will apparently be manufactured by the same people who make Amazon’s Kindles — Hon Hai’s TMS Business Group.

The Citigroup analysts opine that the smartphone will have Texas Instruments’ OMAP 4 processor and is “very likely” to use Qualcomm’s dual mode 6-series standalone baseband because Amazon’s been using Qualcomm basebands in its Kindles.

Amazon may sell its smartphone at close to its putative cost of $150 to $170, the Citigroup analysts speculate.

It’s likely the smartphone will run Android, like the Kindle Fire does.

What a Smartphone Maker Needs

Any company making a mobile communications device has to meet three criteria, Jennifer Jacobson, public relations and social media director at Retrevo, told TechNewsWorld.

“First, the device has to let the user communicate easily with others; second, it needs to connect with a well-known, stable marketplace that gives people access to content, and this is an area in which Amazon has a strong history; and third, and this is key, is the ability for that mobile device to work with data plans from top-level carriers,” Jacobson elaborated.

However, the rapid pace of change and consumers’ desire for newer products with the latest features could make creating a mobile phone “a challenge for any company, whether [it’s doing this] for the first time or the 26th time,” Jacobson pointed out.

The Microsoft Factor

Another possible obstacle between Amazon and smartphones is Microsoft’s exacting of patent fees from phone makers who sell Android phones. The software maker contends it holds rights to some of the technology used in Android.

If Amazon shaves its profits to the bone or takes a loss on the sale of each smartphone, and has to pay Microsoft fees on top of that, it will need to make up for this by selling lots of content to smartphone owners.

Amazon banked on content sales giving it a profit on its Kindles, and that seems to have paid off.

A survey conducted earlier this month by 451 Group division ChangeWave Research concluded that initial consumer demand for the Kindle Fire is “extraordinary.”

It can be reasonably assumed that Amazon’s clearing quite a bit of change from content purchases by Kindle users — and that its sales will only grow further as more Kindle Fires are picked up by more buyers.

The Winter of Consumers’ Smartphone Discontent

However, that success may not translate to an Amazon-branded smartphone.

“The challenge here is for Amazon to deliver valuable content to a smartphone-sized screen,” the 451 Group’s Hazelton remarked.

“What content would you send over the smartphone?” Hazelton asked. “I do use my iPhone as an e-reader when I’m stuck somewhere, but there’s no way I’d use it as a dedicated e-reader; I use a tablet instead,” Hazelton added.

This leads to the question of whether users would sign up for content on their smartphones or their tablets, Hazelton said.

“If it’s a bundled package where you get the content on both devices, you’d be likely to do it,” Hazelton suggested.

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