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Amazon.com Readying Smartphone for Next Year, Citigroup Says

SAN FRANCISCO - Amazon.com Inc., seeking to build on its expansion into e-readers and tablets, is working on a smartphone that will go on sale in the fourth quarter of next year, according to Citigroup Inc.

The phone will be a midrange device that uses a processor from Texas Instruments Inc. and connectivity chips from Qualcomm Inc., said Mark Mahaney, a San Francisco-based analyst at Citigroup, citing research by Asian colleagues. The total list of components won’t exceed $100, he said.

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Amazon’s Kindle is the best-selling e-book reader, and its new tablet computer, the $199 Kindle Fire, is going up against Apple Inc.’s iPad this holiday season. That has set the stage for Amazon to push into mobile phones, Mahaney said. The idea would be to use the device to sell more digital media, such as books and music, rather than making money on the phone itself.

“With the clear success of the Kindle e-reader over the past three years, and Kindle Fire possibly succeeding in the low-priced tablet market, we view this as the next logical step for Amazon,’’ Mahaney said in a report.

The device may retail for less than other phones because Amazon does not need to make money on it, he said. The company may sell it to carriers for $170 - the cost of production and licensing the product - or maybe less, Mahaney said.

A spokesman for Seattle-based Amazon did not respond to a request for comment.

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