Will Vertical Integration in Mobile Shut Processor Vendors Out?

Amazon, in the chip business? That's the rumor that's zinging around the Internet this week.

Specifically, Israeli financial news site Calcalist reported on October 15 that Amazon was talking with Texas Instruments about acquiring TI's mobile phone chip division.

That follows TI's announcement in late September that it plans to stop developing OMAP chips for smartphones and tablets. TI thinks the chance of selling large volumes of such chips in the future are limited, reports the Wall Street Journal: "We believe that that opportunity is less attractive as we move forward," said Greg Delagi, a TI senior vice president, in a meeting with analysts, adding that "vertical integration has become a significant factor in the marketplace."

Translation: Apple and Samsung both make their own processors for their smartphones and tablets. Apple, you may recall, acquired P.A. Semi in 2008. Owning their own microprocessor design teams and controlling manufacturing has surely helped the companies to embed more features and improve performance while at the same time driving down costs.

That could be the motivation behind Amazon's purported interest. "Amazon interest in Texas Instruments' chip business is bigger than smartphones," tweeted Brian Sozzi, an analyst with NBG Productions. "It's about owning the supply chain to drive down costs."

Where does this leave the other major design force in tablets and smartphones -- Google? Well, it did purchase Motorola Mobility last year. The buzz at the time was that the acquisition was all about patents. But I wonder: Did Google get semiconductor design expertise as part of the package?

I couldn't find any details on the extent of Motorola Mobility's chip business, and would love to hear from readers on this question. But Google's press release announcing the closing of the acquisition in May quoted the new CEO of Motorola Mobility, Dennis Woodside:

Motorola literally invented the entire mobile industry with the first-ever commercial cell phone in 1983. Thirty years later, mobile devices are at the center of the computing revolution. Our aim is simple: to focus Motorola Mobility's remarkable talent on fewer, bigger bets, and create wonderful devices that are used by people around the world.

The release also named the new executive team at Motorola Mobility. One was Mark Randall, a former supply chain vice president at Amazon and Nokia.

As the makers of mobile platforms become more vertically integrated, microprocessor vendors may need to rely more on more industrial applications like the smart grid for their sales and profits. TI's Delagi said the company would target more embedded applications with its OMAP technology. TI already has about 4,000 customers for such embedded products, generating about $400 million in annual revenue, he said.

Do these trends make Intel's continual quest to get the Atom processor into the mobile space a bad move? There will certainly be plenty of phone and tablet suppliers out there who will need a third-party microprocessor supplier. At least, let's hope there will be. Or maybe we'll be down to two or three mobile platform OEMs, all controlling their own supply chains.