Given the success of Amazon’s latest Kindle tablet, it’s almost expected that people start speculating about Kindle phones. Citigroup analyst Mark Mahaney and Kevin Chang believe Amazon is on its way to manufacturing phones as well, based on their “supply chain channel checks in Asia.” Mahaney is that same Citi internet research analyst who successfully predicted that Amazon would release an e-reader priced below $100 by the end of 2011.

“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 [a smartphone] as the next logical step for Amazon,” he writes.

Amazon will likely use the same strategy it applied on Kindle Fire and Kindle 4. They will market Kindle phones, which will cost them $150-$170 a piece to manufacture, and sell them at a much lower price. Analysts speculate that Foxconn International Holding is behind the development of the phone and the manufacturing will be handed over to Hon Hai’s TMS business group which is also the manufacturer for Amazon’s e-readers and its supposed 9-inch tablet.

An overcrowded smartphone market

How would an Amazon phone fare in today’s extremely crowded market?  One thing to note here is that the Citi analysts didn’t explicitly say whether or not an Amazon phone would be powered by Android, as its tablets are.  On the one hand, Amazon’s been able to leverage Android’s OS pretty well, extending its marketplace through apps even before it launched the first Kindle tablet.  On the other hand, Android OEMs are numerous and fierce, setting an air of dispersment as many manufacturers try to spread their risk of reliance on a free, open source platform.  We’re already seeing the major OEMs preparing to broaden their smartphone offerings to Microsoft’s mobile platform.

I would expect Amazon to use Android’s platform, because Android apps have become an important part of Amazon’s digital ecosystem.  Amazon’s already on its way to establishing a third party alternative within the Android infrastructure, and the latest Kindle Fire is Amazon’s most poignant example of its potential for differentiation here. In line with the Kindle Fire release, Amazon  updated its App Store, offering a “curated” experience that’s designed to be less overwhelming than the official Android Market.  The update will hopefully boost some user activity for Amazon, which has yet to become the preferred app outlet for Android’s expansive marketplace.

Contributors: Kristina Farrah