apple inc. could earn $5 more per share with Apple TV based on Barclays estimates

Apple Inc. (NASDAQ:AAPL) remains in correction territory, with shares down 24% since September 21st (S&P 500 down about 3% over the same time frame) – and down 9.5% in the last week (S&P 500 was flat) after a partial recovery. Most of the questions investors are fielding are around long-term margin sustainability and a potential for a significant sequential sales slowdown after the December quarter – in both the March and June quarters.

Analysts from Barclays PLC (LON:BARC) (NYSE:BCS) recently held a bull/bear debate with dozens of investors on Apple Inc. (NASDAQ:AAPL) in New York City to present the challenges Apple faces from Google Inc (NASDAQ:GOOG). The room seemed to echo market sentiment – with about 60% believing that Google was Apple’s biggest competitive threat, followed Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) at 30% (other choices were, Inc. (NASDAQ:AMZN) and Microsoft Corporation (NASDAQ:MSFT). 55% of the investors thought that concerns around margins were the biggest issue hampering Apple’s stock, followed by 30% believing that Apple was suffering from a lapse in innovation.

60% of the investors in the room had a price target in the $650 range for Apple Inc. (NASDAQ:AAPL), with 25% believing Apple’s shares were headed for $450 or lower. Many of the questions that they fielded were around what Apple could possibly do next to help improve sentiment. Apple’s multiple contraction to a forward P-E of 10.6x from almost 16x earlier this year at peak, clearly seems to indicate that investors do not believe that there is a “next big thing” and that iPhone growth is flattening out.

The Next Big Thing is Likely Something in TV – Reimagined

Given the current sentiment on Apple, it may be worthwhile to look at the potential for the company to enter the TV market – following several reports from us on this topic. Apple Inc. (NASDAQ:AAPL) has described the TV market as an “area of intense interest,” calling it a market that has been “left behind” in a recent NBC interview. Barclays PLC (LON:BARC) (NYSE:BCS) believes that Tim Cook’s expression is pointing toward an Apple solution in the near future.

In FY12 Apple sold about 5 million Apple TV’s, or the black, hockey-puck shaped set-top box that enables streaming of Netflix, some live sports, and AirPlay. Device sales of the Apple TV were up significantly over the 2.8 million units it sold in FY11. The device has been characterized as a “hobby” and has never been at center stage as iPhones and iPads have.

Nonetheless, the current iteration of the Apple TV does a good job of expanding the use cases of other Apple products. For example, the current Apple TV can stream music and/or other content from an iPhone or iPad to a TV and allow for a MacBook to be mirrored while giving a presentation.

Some analysts speculate that Apple is working on allowing 3rd party apps to run on the Apple TV platform as well, which could expand the use cases. A full on leap into television by Apple Inc. (NASDAQ:AAPL) would likely bring the legacy features of the Apple TV, as well as an integrated content offering and television set. Therefore, combining with the long term hype surrounding an Apple Television set, along with the increased feature set, we would expect strong demand for an integrated Apple TV over the long-term.

Barclays PLC (LON:BARC) (NYSE:BCS) is looking for initial yearly sales of an Apple TV to be in the range of 10-15 million with an ASP of around $1,500 (since it would include Mac-like features) and a margin in the 40% range, which they believe would be industry leading, despite the added features. Even with lower margins, Apple TV could change short term sentiment and be a big revenue source for the tech giant in the coming years. Barclays believes that 15 million units sold could add close to $5 of EPS a share.