All signs from Apple point to the living room and an Apple television, according to a research note to clients from Piper Jaffray analyst Gene Munster. Mr. Munster puts the pieces together from Apple patent applications, comments from Apple executives, and by looking for market opportunities that leverage Apple's strengths.

His conclusion based on these factors is that Apple will be able to leverage its 65 million active iTunes users, the Apple TV, and the company's inherent advantage of developing (and controlling) both the software and the hardware into a user-friendly living room experience that eliminates many of the "pain points" for consumers.

The Apple Television

"We expect Apple to design a connected television over the next two years (launching in 2011) with DVR functionality built in," wrote Mr. Munster. "These recorded shows could then sync with Macs, iPhones and iPods over a wireless network. The device would push Apple further into the digital living room with interactive TV, music, movie, and gaming features."

He believes that such a device "could command a premium" from users who are willing to pay for an easy-to-use solution from Apple, adding "We believe Apple could differentiate itself with software that makes home entertainment simple and solves a pain point for consumers (complicated TV and component systems)."

While he expects such a product in a two-to-five year time frame, Mr. Munster expects Apple to update the Apple TV set top box with DVR capabilities in the near term, noting it would take a hardware revision of the device that includes a TV signal input for DVR functionality.

Actually Listening to Apple

Unlike some analysts, Mr. Munster draws on recent comments from Apple executives when trying to determine their future moves. For instance, he cited Apple COO Tim Cook's commence during the Q1 quarterly conference call in January, where he said, "We're going to continue to invest in [the AppleTV], because we fundamentally believe there is something there for us in the future."

He also noted Apple's stated position of participating in markets in which the company feels it "can make a difference," and in which it can succeed. According to Mr. Munster, the TV market is one that fits those criteria, and he likened it to the cell phone market where many said it would be pointless for Apple to try and make a phone for a market where profits were rapidly declining.

"The bottom line," he wrote, "[is that ]10 million HD TV's sold in the US a year is a real market, and if history repeats itself, Apple will find a way to compete in a commoditized market with a premium priced product."

Apple TV

For the near term, Mr. Munster said Apple will sell some 6.6 million Apple TVs in calendar 2009, up from 2.2 million in calendar 2008. These projections are based mainly on a comment from Apple executives that the company had roughly a 3x growth in sales of the device during the Christmas quarter. A hardware rev of the product could add to those sales, he said.

Mr. Munster said that every one million Apple TVs sold adds US$.03 to calendar 2009 earnings per share estimates (EPS).

The analyst rates Apple as a "Buy," and maintained his price target of $180 per share.

Apple posted a gain Thursday, closing at $96.46 per share, a gain of $2.91 (+3.11%) on moderate volume.

*In the interest of full disclosure, the author holds a small share in AAPL stock that was not an influence in the creation of this article.