Amazon is working on a smartphone to compete with Apple’s iPhone and rival Android powered devices, according to Bloomberg sources.

The introduction of a smartphone would widen Amazon's strategy of making money from digital content with low-priced hardware, following on from its launch of the Android-based Kindle Fire tablet.

The sources said Amazon is working with Chinese final assembly supplier Foxconn on the device and is looking to acquire wireless technology patents in order to defend itself against any allegations of infringement by competitors.

Amazon apparently considered buying wireless patents from Interdigital before that company agreed to sell assets to Intel. Amazon is currently looking at other patent acquisition options, the sources said.

The importance of patents in the mobile industry has been shown by Google’s US$12.5 billion acquisition of Motorola Mobility, while Apple, Samsung and others have been using patents to accuse competitors of infringing their technology.

Amazon declined to comment on the speculation.