Why Amazon wants to get into the microchip business

Amazon CEO Jeff Bezos: The Michelangelo of low, low prices
Amazon CEO Jeff Bezos: The Michelangelo of low, low prices
Image: AP/Reed Saxon
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Amazon appears to be in advanced talks with microprocessor design firm Texas Instruments to acquire the portion of TI’s business that has been creating microchips for Amazon’s latest tablets, including the 7 inch Kindle Fire HD. Two of its main competitors in the tablet arena–Samsung and Apple–can already both custom-design their own chips.

Making your own silicon is not trivial–even Google built its hit Nexus 7 tablet with commodity processors made by NVIDIA. And the new processor in the iPad 3, the first to be designed entirely by Apple, is one of the ways that Apple has been able to achieve so much performance without sacrificing battery life.

Now Amazon wants to have that same ability to hand-craft the brains of its devices. It’s a sign the company that started out as a bookseller now believes it’s competing with the world’s two largest and most powerful electronics manufacturers.

Amazon has done crazy things like this before. This is the company that began in online retail but has already transformed itself into an integral part of the internet’s basic infrastructure by becoming a leading provider of cloud-computing services, which online companies both large and small use to host their data and data-processing.

Amazon has discovered that its customers who own a Kindle read four times as many books as customers who do not. And while users of iPads or Android tablets like the Nexus 7 can read e-books they bought on Amazon by downloading a special Kindle app, those e-books must compete with the ones offered in the Apple or Android stores. On devices that Amazon makes, it can offer its own exclusive content, which now includes movies and music as well as books and magazines. So getting people to buy a tablet that can hold its own against the iPad or Nexus is also a way to get people to buy more of Amazon’s own content.

With the acquisition of the division of Texas Instruments that makes the brains of the Kindle Fire (known as OMAP chips), Amazon would gain the ability to customize its hardware even further, perhaps taking it in directions that could keep its tablets competitive even as the market is flooded with no-name commodity tablets and the forthcoming iPad Mini.

This acquisition would also prevent this source of chips from drying up: Texas Instruments recently announced that it is scaling back research and development for this portion of its business. One awkward detail: TI’s OMAP chips also power Amazon competitor Barnes and Noble’s Nook tablet.