AMZN: Home-Brew Phone Would Be Tough, Says Baird

R.W. Baird’s Colin Sebastian this morning reiterates an Outperform rating on shares of Amazon.com (AMZN), and a $250 price target, while warning that the company had better stay out of the smartphone business.

Rumors have circulated in the past couple weeks that Amazon may be considering building its own smartphone, and such a prospect has even been a source of M&A rumors regarding Research in Motion�(RIMM).

But “an Amazon Phone could be fraught with risk,” Sebastian thinks.

“Our checks suggest that Amazon is seeking direct developer support to grow its mobile platform, and sees itself at a competitive disadvantage without a phone and low-single-digit share of smart devices,” he writes.

For one thing, Baird thinks that assuming such a phone used Google‘s (GOOG) Android software, Google might torpedo it by not making its own apps available to Amazon’s phone:

We do not expect Google to port any of its key native utility apps onto an Amazon/Kindle device. Google develops apps for iOS because of its dominance, but given the Nexus7, is as much of a reaction to the Kindle Fire as it is to iOS, the company may be unlikely to provide any special assistance to Amazon.

And for another thing, Amazon might get trapped in the zone of “erratic profitability” between cheapie stuff and pricey stuff such as Apple‘s (AAPL) iPhone and phones from Samsung Electronics (005930KS):

While the smartphone market is huge�144 million units were sold in Q1 (increasing 42% Y/Y)�the distribution of profits is very uneven. Apple and Samsung are estimated to have accounted for 53% of the total unit sales volumes, but more than 80% of the industry profits. We note that previously established competitors such as Nokia and RIM have struggled to gain traction in the face of new OS platforms, and are now more likely to be casualties of the market. In addition to these platform challenges, other notable �victims� include WebOS (Palm/HP), Maemo (Nokia), Meego (Nokia/Intel) and Bada (Samsung), underscoring the difficulty of establishing new ecosystems.

Amazon shares today are down 31 cents at $215.05.