Amazon prepping cheap-as-dirt smartphone?

Kindle Fire, meet Kindle Fone

Amazon may be prepping a low-cost smartphone for release next year, and their partner in its development is said to be Apple's iPhone assembler, Foxconn.

"Based on our supply chain channel checks in Asia led by Kevin Chang, Citi's Taipei-based hardware research analyst, we believe an Amazon Smartphone will be launched in 4Q12," wrote Chang and fellow analyst Mark Mahaney in an equities alert on Thursday.

Although the development of the phone will be shared by Amazon and Foxconn International Holdings (FIH), the two Citi analysts write, "the device and multiple components" will be manufactured by TMS, another subsidiary of FIH's parent company, Hon Hai.

The analysts say that TMS "makes Amazon's E-reader and the 8.9-inch Amazon tablet" – but Amazon doesn't currently offer an 8.9-inch tablet. All current Kindles have 6-inch displays, the new Kindle Fire's display is a 7-incher, and the display on the now-discontinued Kindle DX was 9.7 inches.

Perhaps the tablet to which Chang and Mahaney were referring is the oft-rumored Kindle Fire 2, which is said to have an 8.9-inch display. If so, that's another cat to come purring out of its bag.

The pair also wrote that the Amazon smartphone will be powered by a Texas Instruments "OMAP 4" processor – the Kindle Fire has an OMAP 4430 – and will have a "dual mode 6-series standalone baseband" from Qualcomm, which may refer to the company's MDM6600 "Gobi 3000" CDMA/HSPA+ module.

The operating system to be used on the purported smartphone wasn't mentioned, but we can only assume – like the Kindle Fire – it'll be a Amazonianized version of Android.

Chang and Mahaney toted up their estimates of the bill-of-materials cost for such a phone at the end of next year, and suggest that it should come in under $100. Add to that assembly, warehousing, warranty, and other costs, and each unit should cost Amazon about $150 to $170, they say.

"What is important to note," they add, "is that Amazon does not need to make money on hardware." As seems to be the case with the Kindle Fire, they might even choose to sell the mid-market smartphone at a loss, focusing more on selling high profit-margin content than low – or no – profit-margin hardware.

If so, the news would be worse for Android smartphone makers than it would be for Apple. Although Apple is currently experimenting with selling earlier models of their phone to carriers at a price that allows them to offer, for example, the iPhone 3GS for free with a two-year contract, it remains a premium brand that would be less threatened by a mid-market phone than would, say, Motorola, HTC, Samsung, and the like.

From where we sit, this Amazon smartphone rumor is quite credible. After all, as Chang and Mahaney wrote, "With the clear success of the Kindle e-Reader over the past 3 years, and Kindle Fire possibly succeeding in the low-priced Tablet market, we view this as the next logical step for Amazon." ®