In a very interesting twist, it seems that Amazon is in “advanced negotiations” with Texas Instruments to acquire its mobile chip business. This follows news from last month that Texas Instruments is exiting the mobile processor market, suspending any further developments of its line of OMAP ARM SoCs.

While this might sound like a drastic move for Texas Instruments, the surprising truth is that OMAP is a tiny and fairly insignificant part of TI’s business plan. TI is the world’s third largest manufacturer of semiconductors, behind Intel and Samsung — but for the most part, these fabs produce analog computer chips, such as radios and DSPs. As far as the OMAP SoCs are concerned, TI is effectively a fabless chip designer, opting instead to outsource their manufacture to TSMC — much like Qualcomm and its Snapdragon SoCs and Gobi modems.

We don’t know for certain, but it is almost certain that TI is retiring its OMAP line because of increasing competition in the mobile market from Qualcomm, Samsung, and recently Apple and Intel. It takes a lot of research and development dollars to remain competitive, and TI has probably just concluded that it isn’t worth it. Initially, when this news broke last month, the predicted repercussions were minimal — OMAP 4 has been reasonably successful, but with superior offerings from Qualcomm and Samsung, the market would quickly readjust following TI’s disappearance.

But now, today, we have news that Amazon is interested in picking up TI’s mobile chip business. While neither Amazon or TI has confirmed the rumor, the leaked information [Hebrew] comes from Assaf Gilad, an Israeli journalist who correctly reported that Apple was in talks to acquire Anobit, a full month before Apple confirmed the acquisition. According to Gilad, the deal would cost Amazon “billions of dollars.” Amazon has around $5 billion in the bank, so the deal is theoretically possible.

If Amazon does acquire Texas Instrument’s mobile chip business, it would presumably also acquire TI’s SoC designers and related intellectual property. It would then use its new-found mobile chip division to create tailor-made SoCs for future generations of its Kindle e-ink readers and Kindle Fire tablets. There is the persistent rumor that Amazon is working on a smartphone, which would also be empowered by an in-house SoC.

Make no mistake, though, Amazon’s acquisition of Texas Instruments would represent a monumental shift for Amazon. While Amazon has had a lot of success with its Kindle devices, the company is ultimately an online retailer — the world’s greatest distributor of physical and digital goods. Spending a few billion dollars on its own in-house chip design department would certainly allow Amazon to compete with other device makers on a more even footing, but the actual gains (both performance and fiscal) would be on the order of a few percent.

It just seems like a very heavy-handed approach. The Kindle Fire and Kindle Fire HD tablets use OMAP processors, so you can imagine that Amazon was concerned when TI announced that it would cease further SoC R&D — but surely the easier (and much cheaper) solution is just to use a Qualcomm or Samsung chip.

If Amazon is really looking at Texas Instruments in earnest, the only sensible conclusion I can come to is that Amazon is about to make a huge foray into the hardware business. Just like Apple bought PA Semi so that it could supercharge its iPhones and iPads with customized, in-house SoCs, Amazon might be eyeing up TI in preparation for a full-blown entry into the smartphone and tablet markets, to compete toe-to-toe with Apple and Samsung. This would be utterly crazy — but then again, when Amazon first segued from e-commerce into the consumer electronics market with the Kindle, we thought that was insane too.

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