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Amazon Reportedly Developing Smartphones

NEW YORK ( TheStreet) -- First it was e-book readers. Then tablets. And soon, possibly smartphones. Amazon (AMZN - Get Report) is reportedly working on at least one and possibly two smartphones of its own.

According to one report Amazon is working on two handsets one of which is a value model offering basic software similar to the company's Kindle Fire tablets. Those tablets run on Amazon's Fire operating system - a modified version of Google's (GOOG - Get Report) Android OS.

Amazon shares were declining 1.06% to $317.12 mid-morning in New York.

The more expensive flagship phone is said to have an interesting "three-dimensional" interface. The project codenamed "Smith" is described:

"The screen itself is not 3D, but the front of the phone has 4 cameras placed on each corner of the phone, this is to track the user's eyes/head and move the UI to give the impression of 3D. Similar to what (Apple's (AAPL - Get Report) ) iOS 7 is achieving simply by using the phone's accelerometer. The advantage being that it's not based on how the phone moves, but how the head moves."

Another feature for the premium model is reportedly "image recognition". It will allow users to aim the phone's camera at any object or product and try to find it for sale in any of Amazon's online shopping stores.

Both features would set the Amazon smartphone apart from the rest of the current crowd. The company has stressed innovation and value for its e-readers and tablets while keeping its customers focused on purchasing goods and services from all of its stores.

Yesterday, Amazon announced its new line of Kindle tablets. The new models range from the $139 Kindle Fire to the top-of-the-line Fire HDX 8.9 retailing for $379.

Amazon's corporate policy is not to release actual sales numbers. That including its electronic products business. But last month Morgan Stanley took a stab at it estimating that Amazon will be selling $4.5 billion worth of Paperwhite e-readers and Kindle tablets this year - an increase of 26 percent over last year's results.

Even without taking the possibility of new smartphone products into consideration Morgan Stanley (MS - Get Report) predicts slightly slower growth for Amazon products in the next two years - $5 billion next year and $5.5 billion in 2015.

Those predictions do not include sales of Amazon''s digital content including books, games and videos. It is estimated that portion of the business will bring in $3.8 billion this year and $5.7 billion in 2014 at which point content will surpass device sales.

Amazon has nothing official to say about the possibility of selling its own smartphones. Industry insiders believe we could see an Amazon "value" handset before the end of this year and the premium "3D" model shortly thereafter.

<P/>--Written by Gary Krakow in New York.

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