Rumors that Amazon is working on its own smartphone have been bouncing around for nearly a year now. But the speculation has really ramped up over the past couple of weeks.

Following a scoop from Bloomberg last week, a new report is out today claiming that the online retailer is currently testing an Android handset with a 4-5-inch display…

The Wall Street Journal reports:

“Amazon is working with component suppliers in Asia to test a smartphone, people familiar with the situation said, suggesting that the Internet retail giant, which sells the Kindle Fire tablet computers, is considering broadening its mobile-device offerings.

Officials at some of Amazon’s parts suppliers, who declined to be named, said the Seattle-based company is testing a smartphone and mass production of the new device may start late this year or early next year.”

As we’ve said before, Amazon poses a major threat to smartphone manufacturers, with an ecosystem that rivals Apple’s. It has its own app store, media content (music, TV, movies) and a massive e-book library.

But make no mistake, the smartphone space is brutal. Veteran companies like Nokia and RIM are struggling to sell handsets. If Amazon wants to run with the big boys, it’s going to have to come up with something more compelling than the Kindle Fire.

So far, it sounds interesting. We’re imagining a 4-5-inch (well, 5-inches would be too big) device running a forked version of the latest Android release, and chock full of high-end components. If that’s the case, then Amazon might just have a hit on its hands.

Boy, the pressure just continues to mount for Apple to turn heads this fall with the next-generation iPhone, doesn’t it?

Do you think Amazon has a shot at gaining smartphone marketshare?

[The Verge]