The mobile chip biz is a tough gig nowadays.

Marvell Technology sits in deep discount territory at new lows. Texas Instruments (NASDAQ:TXN) wants nothing to do with mobile devices anymore. Even chip giant Intel is feeling the brunt of a sluggish PC market. Well, it looks like someone wants in: e-tail king Amazon.com (NASDAQ:AMZN).

Amazon is reportedly in "advanced talks" to acquire TI's mobile chip division in a major move toward vertical integration of its tablet offerings. Integration is where the value chain is headed as companies have taken note of Apple's (NASDAQ:AAPL) incredible success.

The iPad maker took chip design in-house years ago, and the most recent A6 processor powering the iPhone 5 is a testament to its progress. In fact, Apple has reportedly been poaching TI chip engineers. Samsung also designs and produces its own Exynos family of mobile processors bound for its smartphones.

Nuts to NVIDIA
Before the company unveiled its second-generation Kindle Fire HD family, there was speculation that Amazon could opt for NVIDIA's (NASDAQ:NVDA) quad-core Tegra 3 like Google did with its Nexus 7. Instead, Amazon stuck with TI and its OMAP chips and even pointedly called out how the OMAP 4 outperforms the Tegra 3.

Kf Chip

Source: Amazon.

The first Kindle Fire was chock-full of TI guts anyway, as is the new one. Of course, some of these ingredients aren't included in the mobile chip segment, such as integrated power management circuits, among others. Still, the processor is among the most important component pieces to any device puzzle, and acquiring the mobile segment would make the OMAP family all Amazon's.

Baseband play?
Another interesting aspect of this deal would be that Amazon would also be getting a baseband product portfolio also, which is included in TI's wireless segment. Technically, TI gave up on basebands years ago but was primarily still selling to baseband main flame Nokia (NYSE:NOK). Interestingly, despite getting out of the baseband market, a new chip was found in the Nokia 700 less than a year ago, so TI's at least been putting a little effort there.

Incidentally, Nokia has since switched to Qualcomm for most of its baseband needs, unsurprising since Microsoft Windows Phone exclusively runs on Snapdragon processors that play nicer with Qualcomm's own basebands.

Amazon has yet to ship its LTE-equipped 8.9-inch Kindle Fire HD  to take on the iPad in the full-sized tablet market, so it remains to be seen what baseband will be found powering that device's cellular connectivity. Come Nov. 20, it will be released and torn asunder. With an upcoming cellular model, Amazon certainly could have some use of in-house baseband expertise.

Considering its shift away from basebands, whatever modem designs TI has laying around at this point likely wouldn't be competitive when stacked up next to leading players in the market today (like Qualcomm or Intel). Although Amazon currently focuses its hardware sales on the domestic U.S. market (with a dash of Europe on the side), in which case TI's baseband knowledge may be sufficient.

What's up next?
The obvious next step would be to put TI's next-generation OMAP 5 into next year's Kindle Fire upgrades. These were to be TI's first chips to incorporate ARM Holdings Cortex A15 core designs, on par in performance with Samsung's upcoming Exynos 5 family that will also feature A15 cores.

It's also a risk that Amazon spreads itself too thin since buying a mobile chip division is tangential to its core e-tail business. Kindle Fire hardware has always been lackluster, but that hasn't stopped it from rising to the top of the Android tablet market thanks to its strong content backbone. If anything, Amazon has already proved that it doesn't need the beefiest hardware out there to succeed, so the notion of it focusing on hardware design is rather curious.

Remember that Amazon has also recently made several software-related acquisitions that are indubitably geared toward mobile: Yap for voice recognition and UpNext for 3-D mapping. This isn't the first time investors have heard speculation about Amazon acquiring a mobile hardware business -- Research In Motionanyone? -- and it may not be the last.

Unlike the RIM rumor though, this one makes some sense if Amazon can pull it off without losing sight of Jeff Bezos' vision of world e-tail domination.

 
 
 
 
 
 

Evan Niu, CFA, owns shares of Qualcomm and Apple. The Motley Fool owns shares of Apple, Amazon.com, Google, Intel, Microsoft, and Qualcomm. Motley Fool newsletter services recommend Amazon.com, Apple, Google, Intel, and NVIDIA. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.