Amazon(s amzn) is considering a bid for Texas Instruments’ (s txn) mobile chip business unit. The Next Web noticed that an Israeli news site, Calcalist, reported on Monday that the deal is in advanced negotiations and will be valued at billions of dollars; TI’s market cap is currently $32.35 billion. Texas Instruments’ OMAP line of chips powers various phones, ereaders and tablets, but the company has been steadily losing ground to other chip makers in this market, such as Qualcomm(s qcom), Nvidia(s nvda), and Samsung. TI will reportedly keep its other lines of business for sensors and automotive chips.
Indeed, TI’s OMAP line has had few major product design wins of late. It powers the new Kindle Fire HD tablets, the Barnes & Noble Nook Tablet(s bks), and a fair number of Motorola(s goog) phones. Even Motorola, however, has recently switched to alternatives from Qualcomm: The company’s new Razr HD and Razr HD Maxx will use a Qualcomm Snapdragon chip; a change from the prior Razr models that relied on a TI OMAP.
Texas Instrument’s OMAP woes, however, could be a benefit to Amazon in several ways. First, although the up-front cost would be massive, the purchase could cut the unit costs to produce hardware such as Kindle e-readers and tablets. Currently, Amazon sells hardware roughly for cost, with hopes of recouping revenues and profits through content sales. By producing chips in house, profits could be seen on the hardware although it could time to realize such benefits; it’s not cheap to sink money into long-term capital such as chip fabrication production lines.
Having its own chip business could lead Amazon to customize the silicon so that its optimized for Amazon’s products. This approach is similar to that of Apple, which creates custom chips that are made to run iOS to its full potential. While Amazon doesn’t have a mobile operating system of it’s own, the company is using Google Android as a base with Amazon software for the user interface. With a chip business, Amazon could improve the performance of its tablets by optimizing the union of silicon and software.
This situation does cause one to think about Amazon getting into the smartphone business as well. As noted, TI’s OMAP chip already powers numerous Motorola handsets as well as my own Samsung Galaxy Nexus handset. I’d say there’s an outlier chance here as the smartphone market isn’t an easy one to crack. It’s not out the realm of possibilities, of course, and if Amazon is going to spend billions for a chip business, it will surely want to maximize its return on that investment.
That leads to one other possibility here if Amazon were to buy the OMAP business from TI: Servers. While Amazon is known as a retail and content company, it’s a cloud company when you peek inside.
The company relies heavily on its cloud services for the retail experience, Whispersync technology and its AWS, or Amazon Web Services which let users rent computing storage and processing power in the cloud. For some time, x86 chips have powered cloud-based servers, but cloud computing can be done on smartphone chips as well; an OMAP purchase could reduce Amazon’s cloud costs and even lead to custom hardware that’s more power efficient.