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Analyst Reveals More Evidence of Apple Working on Networked Televisions

Despite Apple’s open disregard for the television market, Piper Jaffray analyst Gene Munster has expressed his belief that the Cupertino-based company will deliver a networked television within the next couple of years and issue an Apple TV update to provide DVR functionality by the end of 2009.

AppleInsider reveals that a recent research report given by Munster, the analyst states, “We expect Apple to design a connected television over the next two years (launching in 2011) with DVR functionality built in…These recorded shows could then sync with Macs, iPhones and iPods over a wireless network.”

A product of this nature and magnitude has been discussed and debated for quite some time. While Apple has openly denied such claims, many have negated the company’s disinterest in this market. Former co-founder of Weblogs Inc, GM of Netscape and current CEO of Mahalo, Jason Calacanis had previously alluded to claims that Apple had already begun work on HDTV sets. In an October interview with Cnet UK writer, Nate Lanxon, Calcanis reported that, “These LCD HDTVs will be fully networked, with the ability to stream all your iTunes content from your Mac or PC…they’ll function like a standard TV with an Apple TV box, only without the need for the box.”

A device such as this would undoubtedly provide consumers with a complete in-home entertainment experience, providing interactive TV, movies, music, and gaming in one centralized location. Using magnitude of iTunes and the ability to streamline entertainment in one nifty little package without requiring a set-top-box or additional device attachments, Apple could create a device that would be sure to stand out from the crowd.

Munster adds, “With the use of a CableCARD for digital HD TV signal, Apple could effectively replace the home entertainment system (including a music stereo, cable box, Blu-ray/DVD player, and gaming console) with an all-in-one Apple television.” In essence, he feels that an all-in-one setup could leverage Apple to command a premium among the competition, by using their software to provide a simple and cohesive system. Munster believes that Apple will setup the groundwork for such a device by the end of the year, by releasing an updated Apple TV that will support DVR functionality through the inclusion of a coaxial line-in.

AI reveals that Munster and his team provide 5 distinct reasons of why they believe we will see an Apple device such as this including:

1. Indications From Management: The company appears to be determined to capitalize on its opportunity to bring the iTunes ecosystem to the living room. On the Q1′09 conference call, interim CEO, Tim Cook, said, “We’re going to continue to invest in [the Apple TV], because we fundamentally believe there is something there for us in the future.”

2. DVR And TV-Related Patent Filings: Patents filed in October 2006 and published in March 2008 indicate that Apple is exploring DVR functionality, which would require updated Apple TV hardware (with a TV input) and software.

3. LG Partnership For LCDs: Apple recently announced a five-year, $500 million agreement with LG Electronics for supply of LCD screens. While this agreement likely covers LCDs for Macs, displays, and portable devices, it could also include LG’s larger LCD TV displays.

4. The Addressable iTunes User Base: Apple’s addressable market for Apple TVs is strong and growing. As of September 2008 Apple has over 65 million iTunes users, and as of December 2008 Apple has sold over 32 million iPhones and iPod touches, which can already be used as remote controls for the Apple TV.

5. Apple Could Win In A New Market: Piper believes the television market is increasingly moving towards a connected TV environment where software will be the key differentiator. Despite the ~70% price declines in the overall TV market in the past three years, Apple could enter this high volume (~10m US units a year) market at a premium price point because of its ability to deliver hardware and software that work well together. Apple has indicated that it only wants to participate in categories it feels it can make a difference (and win) in, and like the smart phone market, we believe connected TVs fit the company’s criteria.

While Apple insists that the current Apple TV acts a mere hobby for the company, Munster states, “While 3x growth may seem aggressive, on the December 2008 quarter conference call Apple indicated that Apple TV sales were up ‘almost 3x’ year-over-year in the quarter,” adding, “If we apply this growth rate throughout calendar 2009, it would indicate Apple TV units of over 6 million in calendar 2009.”

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