AAPL: Chat With TV Parts Vendor Points to Television Set, Says Piper; What About ROVI?

Piper Jaffray’s Gene Munster wrote late Tuesday night in a report to clients that he’s had conversations with “a major TV component supplier” that reinforce his conviction Apple is preparing to introduce its own television set.

Munster thinks the hardware is the simple part, and has already been prototyped, with the more tricky aspect being how to offer content through such a “connected TV.”

In Jan-12 we spoke with a major TV component supplier who has been contacted by Apple regarding various capabilities of their television display components. We see this as continued evidence that Apple is exploring production of a television. This latest data point follows Jan-11 meetings in Asia that led us to believe Apple was investing in manufacturing facilities for LCD displays ranging from 3.5″ mobile displays to 50″ television displays. In Sept-11 we met with a contact close to an Asian supplier who indicated that prototypes of an Apple Television are in the works. We believe TV hardware could be ready for a late CY12 launch, but the timeline and scope of a revamped content solution is more uncertain.

Apple is all about “reinventing” markets, writes Munster, and “Since we know Apple is exploring television hardware, we are therefore led to conclude that the company is exploring a solution for live TV, and this solution could be one that has not yet been taken mainstream.”

Munster has an Overweight rating on Apple shares and a $670 price target.

Update: Munster’s colleague, Michael Olson, who has an Overweight rating on interactive software vendor Rovi (ROVI), writes this morning that the prospect of an Apple Television “could result in increased royalty payments from Apple to Rovi for IPG patents,” referring to Rovi’s “interactive program guide” software technologies.

Rovi probably gets $8 million to $10 million a year in patent licensing fees from Apple, Olson speculates, stemming from a contract signed September of 2010. That deal is a fixed payment, but a TV deal, if one happened, could see Apple paying Rovi a per-unit royalty like some TV makers already do.

Olson muses that a successful Apple�user interface for a television set could prompt TV vendors to seek Rovi to help them figure out how to respond:

PJC Apple Analyst Gene Munster expects the Apple Television to incorporate a unified interface for search and discovery of video content on the Apple Television, likely involving a linear program guide. However, Apple’s best-in-class software would also likely solve many of the usability issues that plague the current generation of connected TVs. We believe Apple’s example would accelerate the adoption of enhanced interface & content integration technologies on connected TVs. An Apple Television would likely cause existing CE manufacturers to scramble to match it, similar to what we saw in the phone or tablet market after Apple launched the iPhone and iPad. Rovi already has deals in place for use of total guide components with Sony, Samsung, Sharp, Toshiba, Panasonic, and Vizio. We believe existing partners, as well as new customers, could choose to leverage Total Guide components more fully to quickly ramp an improved connected TV software platform to compete with an Apple Television.

Rovi shares Tuesday closed down 2 cents at $32.09.