After  establishing a presence in the tablet and set-top box market, Amazon is taking it a notch higher by stepping into the territory of giants like Apple and Samsung in the smartphone space.

Amazon Inc., world's largest online retailer, is reportedly preparing itself to join the smartphone race with a version of its own during the second half of this year. The report, if true, will put the e-commerce giant in direct competition with Apple, Samsung and other mobile manufacturers. According to a Wall Street Journal report, citing anonymous sources, Amazon has been testing versions of the phone in its hometown Seattle and San Francisco.

Amazon's rumored smartphone will most likely feature a screen capable of displaying 3D images without special glasses. The smartphone will be equipped with four front-facing cameras, or sensors, and use retina-tracking technology for a 3D projection, people briefed on the company's plans told WSJ. The smartphone will sense  eye movements and automatically zoom into images if the phone is brought closer to user's face.

The Seattle-based online retailer recently made headlines for its new device entries. Earlier this month, the company entered the video streaming set-top box market with a $99 Amazon Fire TV to compete with Apple TV, Roku and Google Chromecast. Amazon also introduced a new free device for shoppers this month, called the Dash, which scans product barcodes and voice-logs the names into a tiny gadget, all without leaving the house. The retailer has limited the availability of the Dash to Prime Fresh members only.

The Journal also reported that Amazon has partnered with Japan Display, the maker of Apple's iPhone 5S and 5C displays, and another manufacturer for the mass production. The rumored smartphone is likely to enter mass production later this month, with an initial order of 600,000 units. The mobile OS that will be used in the smartphone is still unknown, but a report from Re/code, which also confirmed Amazon's smartphone plans through anonymous sources, says Amazon will use a modified version of Google's Android OS.

Amazon already uses custom Android OS for Kindle Fire tablet and Fire TV set-top box, which limits users from the Google Play Store and offers its own app store for digital content.

Amazon's entry into the new category comes at a time when the smartphone market is experiencing a rapid expansion. The market is widely dominated by Samsung and Apple, with 49 pecent of the worldwide smartphone market ruled by the two tech giants, according to IDC. For Amazon to make an impact and sustain a dominant position will be its biggest challenge.