Analyst Shaw Wu reported in Friday that the inclusion of a DVR into the Apple TV would convert that product from a "hobby" into a real business. He also reiterated a "buy" rating for AAPL and set a target price of US$175.00.

The recent filing by Apple with the U.S. Patent and Trademark Office for a DVR system suggests that it might make it into Apple TV version 3 or 4, according to Mr. Wu. However, he noted, as Apple does, that Apple patent filings don't always translate into a shipping product.

In his note, obtained by The iPod Observer, Mr. Wu said:

• "We believe these added features could show up as early as version 3.0, and possibly 4.0, and turn AppleTV into a real business as opposed to just a "hobby" as Steve Jobs has described it.
• We estimate AppleTV to be a very minor contributor today at ~0.3-0.4% of revenue or $100-125 million annually. We believe adding the ability to watch and record live TV could turn this into a billion dollar, if not multi-billion dollar business.
• We (as well as many others) have been clamoring for DVR and/or TV tuner capabilities since the introduction of AppleTV 1.0 in January 2007 and even AppleTV 2.0 with movie rentals in January 2008. We are pleased to see AAPL listening to customers similar to what it has done with iPhone, with adding native access to Exchange server.
• We estimate that the cost of hardware components isn't that expensive at about $12-15 in incremental cost per AppleTV. In addition, HDD storage capacities may need to be larger, particularly if HD is a feature.
• We would like to note that there have been filings in the past that have not come to fruition... yet. One example is Bluetooth stereo headsets which have yet to ship but, we believe will at some point as cost of components declines.
• As an aside, our sources indicate Sony is in final discussions with both AAPL and MSFT in bringing Blu-ray to Macs and Xbox 360 respectively. Blu-ray is already being used by high-end Mac users and supported through third-party vendors. We were a little early in predicting official Blu-ray support this past MacWorld Expo 2008."

Mr. Wu's conclusion was that: "While near-term trends look difficult with a looming recession and a slow-down in consumer spending, we continue to believe AAPL is well-positioned to weather the storm better than most with its strong fundamentals." He reiterated a "buy" rating and a $175 target price.

Yesterday, it was reported here that Microsoft executive Aaron Greenberg said that Microsoft was not in talks with Sony "to integrate Blu-ray into the Xbox experience." What that wording specifically means and how that relates to reports that Microsoft has been talking with Sony is not yet clear.

On Friday, Apple stock was down $2.04 in afternoon trading at US$125.90.

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.