An Apple UltraHD TV Could Double Its Stock Price, Says Icahn

A picture taken on April 4, 2012 shows t
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It's inevitable that Apple (AAPL) will be a TV star one day. It will go beyond making the set-top Apple TV box to unveil a full-blown television. It will raise the bar on what today's smart televisions can do. Steve Jobs talked it up before his death three years ago, so isn't it just a matter of time before it becomes a reality?

Billionaire activist Carl Icahn has become the latest person to talk up the potential of Apple's entry into the world of actual televisions. In his open letter to Apple CEO Tim Cook last week, Icahn leans on Apple rolling out an ultra-high-definition television -- or UltraHD TV -- as one of the reasons the consumer tech giant's stock is too cheap today.

Icahn feels that Apple shares should be trading north of $200. In other words, he feels that the stock should double from here. He sees the continuing success of the iPhone and the recent Mac revival leading the way, but a high-def TV out of Apple is also part of Icahn's master plan.

Thinking Inside the Box

Icahn's camp believes that Apple's UltraHD TV will hit the market during fiscal 2016. For Apple that's the financial year that begins in October 2015, possibly hitting the market ahead of next year's meaty holiday shopping season.

His goals are lofty. He sees Apple selling 12 million UltraHD TVs in fiscal 2016, followed by another 25 million in fiscal 2017. They won't be small. They won't come cheap. Icahn sees an average selling price of $1,500 for the sets, which will come in 55-inch and 65-inch options.

It's important to remember that Icahn is merely dreaming out loud here. True, he's connected. Also true, he's met with Cook. However, Apple rightfully keeps its future plans and new product lines guarded, and we shouldn't think Icahn has been invited behind the curtain. That said, Icahn's forecast has a lot riding on this launch. He sees Apple's profit climbing 30 percent in fiscal 2016, but that drops to just a 19 percent uptick in earnings per share if the TV is a no-show.

Remote Control

There's no denying that Apple can be a major player here. It's a tastemaker and disruptor in consumer tech. However, it's also naive to think that it will be able to generate tens of billions in incremental annual revenue just because it dives right in.

For starters, this is very competitive market. Sony (SNE) posted 10 consecutive years of losses in its TV business before finally deciding to spin it off earlier this year. If Icahn thinks that Apple can command the same kind of gross margins in TVs as it does on iPhones, he's going in for a rude awakening when folks bypass Apple sets in favor of similarly equipped offerings selling for half as much.

It's also important to remember that video game consoles and set-top boxes are already making TVs slick Web-surfing devices. This isn't like the smartphone or tablet business, where Apple raised the bar with a self-contained solution. Apple will be competing with both rival TV manufacturers and the faster-moving players that are already excelling at turning ordinary TVs into extraordinary centerpieces of the home theater experience.

It's not just high prices and the competitive climate that may weigh on Apple's UltraHD success. Think about the Apple Store experience. How many people do you think will line up at the mall to lug out a 65-inch screen? This isn't the same mobile computing revolution that has served the iPhone and iPad so well. And if you're having technical problems, good luck bringing that massive set to your local Apple Store's Genius Bar.

This doesn't mean that Apple shouldn't entertain this market. It should, and it probably will. However, it will be lucky to sell millions, let alone of tens of millions, and even then, those sales may come with the downsides of leaner margins and longer cycles between upgrades. After all, no one's going to buy a $1,500 TV with the idea that they'll trade up every two years like they do with their smartphones.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. Check out our free report on the Apple Watch to learn where the real money is to be made for early investors.

Originally published