"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 this as the next logical step for Amazon," the brokerage said.
The brokerage expects the smartphone to adopt a Texas Instrument OMAP 4 processor and Qualcomm's baseband chips.
Citigroup also suggested the device would cost $150 ~ $170 to build, and might be sold for about that amount. Amazon is selling the Kindle Fire tablet at $199, which is $10 less than research firm iHS determined was the $210 cost of building the device.
Amazon officials did not respond to a request for comment.