Apple's (NASDAQ:AAPL) assault on the living room likely means the introduction of another Apple appliance or device and Apple TV is the best thing the Cupertino, California-based company can do.

We find it difficult to believe that the Apple TV is the best Apple can do, Jefferies analyst Peter Misek wrote in a note to clients.

Could it be a full 42 or larger TV?

Certainly there has been chatter for a new TV effectively integrating all set-top box functionality, console functionality, and Apple TV functionality into the TV set.

However, the analysts cannot seem to get over the margin structure of the TV business, which is significantly lower than any of Apple's existing businesses.

Industry TV gross margins have averaged 5 percent to 20 percent with Japan electronics companies' operating margins in the 0 percent to 5 percent range for most of the last decade, Misek wrote.

In addition, the analyst believes Apple's intellectual property will be difficult to leverage directly in the construction of a TV.

However, the Misek is not ignoring the possibility of a simple TV from Apple.

While a simple TV is certainly possible, we just believe Apple wants to do something completely different, Misek said.

Given Apple's historical preference to innovate a new category, there is wide anticipation that whether Apple's introduction of the iTV allows it to launch a premium-priced piece of hardware?

What to Expect in iTV?

Besides incorporating Apple TV-type functionality, Misek believes a full browsing experience potentially featuring an iPad, iPod Touch, or iPhone as remote control or input device is quite possible.

We think Apple could provide an extremely elegant solution, effectively allowing the user to move content between the multiple screens, Misek added.

Additionally, the analyst believes Apple has learned much from having Netflix on the Apple TV and that Apple will try to improve on this model. But, the real question is how does Apple convince Hollywood and other content creators to license it?

According to Misek, the best way to do that would be the model used for app developers and let them take the vast majority of the revenue while Apple uses the content to drive device sales and monetize it that way.

iTunes has been highly successful be we do not think that is it from Apple. There is another level coming here, and we see this as one of the most fruitful potential uses of Apple's enormous cash hoard, the analyst added.

Cloud Factor

The cloud-based services will likely drive a halo effect for Apple's existing products and the iTV. For Apple this likely means more device sales and higher average selling prices on existing products than previously expected.

The analyst believes Apple has been developing an array of cloud services of which the tablet will be a critical part. No wonder, Apple spent two years developing and fine tuning the hardware and software before launching the first iPad and that head start is proving difficult for competitors to overcome.

As the cloud service requires integrated software, hardware, online, and living room elements, we believe it may be even more difficult to replicate, the analyst said.

Currently Apple differentiates via its stable and easy-to-use software, a thin and light design, and low prices. As competitors catch up on each of those attributes, Apple will add cloud services that will be difficult to imitate.

In April, Misek has tried to estimate the financial impact of the roll-out of video-based cloud services in fiscal 2012 and 2013, excluding any impact from a potential iTV launch. Misek assumed a Netflix-like model at $10 a month assuming 5 million, 10 million and 20 million subscribers.

Misek assumed that 70 percent of the revenues goes to the content companies with 30 percent to Apple. On Apple's 30 percent, he assumed either a 75 percent, 85 percent, or 95 percent gross margin. To reflect the halo effect, Misek increased unit shipment estimates by 5 percent for the iPod Touch, iPhone, and iPad by 5 percent. He also increase his average selling price estimates by 5 percent.

We have run a sensitivity analysis on the potential impact. Assuming an iTV launch, a cloud-based services launch, and a halo effect on existing devices (boosting units and average selling price by 5 percent), fiscal 2012 revenues would range from $150 billion to $171 billion versus our $134 billion and consensus' $118 billion, said Misek.

Misek said these revenue ranges would be 50 percent or 70 percent higher than fiscal 2011 consensus revenues of $100 billion. 50 percent to 70 percent revenue growth would appear to be a fair tradeoff for about 100 to 200 basis points hit to gross margin. Finally, EPS would range from about $32 to $36 versus Misek's estimate of $28 and consensus' about $26.50.

Due to the rise of Android, the Street believed that Apple's run of innovative new devices was coming to an end, meaning that Apple would be forced to compete on price in the future.

But if we are right about the cloud-based services, the main advantage of this closed system will be to ensure a high-quality, easy-to-use and leverageble content store similar and potentially more powerful than the App Store, Misek said.