• by Mark Walsh  @markfwal, November 17, 2011

Amazon has already come out with an e-reader and a tablet, so why not its own smartphone? That’s exactly what the online retail giant plans to do in 2012, according to a new report. Citigroup analyst Mark Mahaney predicts Amazon will launch a branded smartphone during the holiday season next year.

“Based on our supply-chain check, we believe FIH is now jointly developing the phone with Amazon,” wrote Mahaney, referring to Taiwan-based manufacturer Foxconn International Holdings. He added that an Amazon phone would also likely include a Texas Instruments OMAP4 processor and a dual-core chip from Qualcomm. 

Based on the device’s expected components, the report indicated the Amazon will probably offer a mid-tier smartphone with a four-inch touchscreen that could be sold by a brand like HTC for $243. That price would translate into a 30% gross margin.

“If Amazon is actually willing to lose some money on the device, the price gap could be even bigger,” Mahaney wrote. That could mean selling the phone for $150 to $170, the estimated cost of building the device. 

Amazon has already shown a willingness to outdo its rivals on pricing, introducing a $79 entry-level Kindle and the Kindle Fire tablet for $199 -- $300 less than the iPad. It has been reported that the company is willing to lose $10 on each tablet it sells. Research firm HIS recently estimated it costs about $84.25 to build a Kindle e-reader, meaning that Amazon is also losing money on the $79 model to help expand the customer base.

Mahaney argues that a smartphone is the logical next step for the company.

,“With the clear success of the Kindle e-Reader over the past 3 years, and Kindle Fire possibly succeeding in the low-priced Tablet market, we view this as the next logical step for Amazon,” he wrote. “We continue to believe Amazon has now set its eyes on the Mobile (and Tablet) Media and Product consumption frontier.”

An Amazon smartphone would also serve as another vehicle for selling the company’s growing selection of digital content, including books, magazines and newspapers, movies and TV shows and music. It could also supply preferred options to Amazon phone owners to encourage sales of physical goods.

Whether the retailer actually enters the smartphone wars next year is still an open question. Amazon did not respond to a media inquiry on Thursday about the Citigroup research note.