Is Vertical Integration on the Horizon for Amazon?
According to a report in the Israeli newspaper Calcalist, Amazon (NASDAQ:AMZN) could be preparing to up the competition in the tablet computer market.
Apple (NASDAQ:AAPL) has long had more favorable gross margins than its peers because of the company’s vertical integration; Apple not only designs its own devices, but its operating system and the system-on-chip as well. Now, Amazon appears to be on a similar course.
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The world’s largest Internet retailer may be in negotiations to purchase Texas Instruments’s (NASDAQ:TXN) mobile chip business. According to Reuters, this acquisition would aid Amazon’s entrance into the smartphone industry and make it a “direct rival to Apple and Samsung Electronics (SSNLF.PK).” Both companies design their own chips.
Texas Instruments, which already manufactures the processors used in Amazon’s tablet, said in a conference call last month that it plans to shift its business from smartphones to a broader market, including automobile manufacturers. CNET reports that Texas Instruments has faced increasing pressure from Nvidia (NASDAQ:NVDA) and Samsung, which “have been able to attract more mobile vendors with their perceived better performance.”
But the deal has not been confirmed. Gartner analyst Carolina Milanesi told Reuters that she doubted Amazon wanted to “become that intimately involved with hardware.”
While the Calcalist article said TI spokeswoman Whitney Jodry refrained from commenting on the rumors, according to the publication, the deal could be worth billions of dollars.
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