Amazon.com is rumoured to be in "advanced talks" with Texas Instruments (TI) to buy its mobile chip business.
According to Israeli financial newspaper Calcalist, such a deal would be valued at billions of dollars and would put the online retailer in a stronger position to compete against Apple and Samsung in the tablet market, by giving it the ability to design and manufacture its own mobile chips.
It may also pave the way for the company to create its own smartphone, according to the newspaper.
The news comes as Amazon prepares to launch its Kindle Fire HD tablet in the UK in the coming weeks. The device is already available in the US, and will make it out in the UK, Germany, Italy, Spain and France on October 25.
The first Kindle Fire became Amazon's most successful product, and in its first year the device captured 22% of US tablet sales, according to the company.
Texas Instruments chips are used in the Kindle Fire, but TI said in September that it will shift its wireless investment focus away from products like smartphones and tablets due to increased competition and declining market opportunities.
Instead, it will focus on manufacturing embedded chips for industrial clients like carmakers where it is hoping for a more profitable and stable business.
TI told investors it would continue to support its customers but its mobile application chip business, which supports features like video, will not invest in tablets and smartphones to the same degree as before.
Commenting on the news, Gartner analyst Carolina Milanesi told Reuters she doubted whether Amazon wants to "become that intimately involved with hardware".
Neither of the companies were available for comment at the time of writing.