Will Amazon produce its own Android tablet?

As we reported, a recent New York Times blog post suggests that Amazon is looking into producing more hardware beyond the Kindle. Ironically, Lab126, the division of Amazon that is behind the Kindle, is located in Cupertino, Calif., not far from Apple. And Nick Bilton at the Bits Blog points out that the job board at Lab126 has "a flurry of listings related to electronics hardware, with titles like supply chain project program manager, hardware engineer and RF systems engineer."

While some of the positions will be devoted to future generations of Kindle devices that may integrate touch screens and color (last year, Amazon acquired Touchco, a multitouch hardware company), Bilton says "there's also a good chance these engineers will be recruited to build other gadgets that Amazon is prototyping in its secret labs."

The question, of course, is what sort of gadgets could Amazon be looking into building? Well, one of the anonymous sources in the article gives a small hint, saying that "more hardware products would be a means to an end and that Amazon wants to make more devices for consumers that would enable simple purchasing of Amazon content including its digital books, music and movie rentals and purchases."

I know from speaking to Ian Freed, Amazon's vice president of digital (yes, that's his title), that one of the things that Amazon loves about the iPad is that it allows users to access and purchase Amazon products, whether it's e-books or anything else Amazon sells. The article states that Amazon looked at entering the mobile phone business (again, according to anonymous sources), but that the project seemed "out of Amazon's reach."

So, in my mind at least, the most logical extension of Amazon's vision--and the product that it makes the most sense for it to build and sell--is a small Android-powered tablet that manages to undercut the pricing of Apple's competing iPad products. (I use the plural because Apple is rumored to be prepping a smaller iPad. Whether that's true or not is anybody's guess).

As to what size Amazon's Android tablet would be, I would say something in the 6- or 7-inch range would make a nice companion to the current E-Ink based 6-inch Kindle. Of course, Dell has made its foray into the tablet market with its 5-inch Streak, but going a little bigger would make the Amazon tablet better for reading Kindle books and watching Amazon Video on Demand. Of course, the big challenge for Amazon would be to produce and sell such a device at a reasonable cost (the Streak is a little expensive), but it certainly has the marketing muscle to sell a lot of these things at the right price. And, as everybody knows about consumer electronics, your costs go down as you produce more product, which is part of the reason Apple is in the enviable position it's in.

Some time ago TechCrunch's Michael Arrington had the dream of building a simple CrunchPad tablet that cost less than $300 and ended up with the crippled and overpriced JooJoo and lots of legal action. I have a feeling Jeff Bezos' dream isn't too far off from Arrington's, but he has the wherewithal to come up with something a whole lot better.

What do you guys think? Does Amazon have an Android tablet in the works? If not, what other gadgets does it make sense for the company to produce?