Activist investor Carl Icahn, who owns 53 million shares of Apple (AAPL -0.35%), wants the tech giant to make TVs. In an open letter to CEO Tim Cook, Icahn claimed this week that Apple could sell 12 million 55-inch and 65-inch Ultra HD TVs if it launched them in fiscal 2016, and another 25 million units the following year, for an average price of $1,500.

Icahn's idea isn't new. Apple launched the Apple TV set-top box in 2007 to sell iTunes content and stream videos from Netflix, HBO, and other channels. Apple doesn't release quarterly sales figures for the Apple TV, but Cook revealed in April that the company had sold 20 million units so far. In May 2013, Cook announced sales of 13 million units, with "about half" sold in the previous year. Based on those numbers, we can estimate that Apple sells roughly 6 to 7 million Apple TVs set-top boxes per year at $99 each.

The Apple TV set-top box. Source: Apple.

Two years ago, Cook told NBC that TVs were outdated by "20 to 30 years," and that smart TVs were an "area of intense interest" for the company. In late 2012 and early 2013, reports from Foxconn hinted that Apple was developing a TV set, but subsequent reports indicated the project had been delayed due to the Apple Watch and an A7-powered fourth-generation Apple TV.

The problem with smart TVs
Apple co-founder Steve Jobs wasn't a fan of smart TVs. During a conference in 2010, he noted that there was no national cable operator to team up with, and that technical standards were different in each country. "It's not a problem with technology," Jobs stated. "It's not a problem with vision. It's a fundamental go-to-market problem."

Eddy Cue, the head of iTunes, stated during the Code conference in May that smart TVs would be hard to develop due to all the moving parts involved, such as media and pay-TV companies. Smart TVs disrupt those companies' business models by streaming content intended for PC and mobile audiences to TVs, causing a conflation of TV and Internet advertising rates. That's why all the major U.S. networks blocked their Internet content on Google TV, the smart TV platform co-developed by Sony (SONY -0.13%), Intel, and Logitech. To avoid those headaches, Apple released a set-top streaming box instead, allowing media companies to sell ad-free content at a la carte rates on iTunes.

A set-top box was a smarter option than a full smart TV, since the TV set business is a notoriously low margin one. Sony struggled with its TV business for years before spinning it off earlier in 2014. Sony dominated the CRT market for years, but lacked the manufacturing facilities for LCD panels. As a result, Sony bought components from rivals such as Samsung (NASDAQOTH: SSNLF), which resulted in higher production costs. Samsung and other South Korean rivals -- many of which manufactured their own components -- then lowered their prices, undercut Sony, and conquered the market.

Over the past three years, lower prices across a saturated market flushed out other Japanese competitors including Panasonic and Sharp. Samsung emerged victorious, claiming 27% of the flat panel and 36% of the premium (60 inches and up) TV market in 2013, at the expense of selling them at razor-thin margins.

To keep up, competitors piled on gimmicks, such as Android apps, 3D displays, and curved screens, but the market nonetheless became commoditized. After peaking in 2011, the global TV market fell 6% in 2012 and another 3% in 2013, according to NPD.

Why Apple shouldn't make Ultra HD 4K TVs
The latest innovation in TVs is Ultra HD 4K, a fancy term for new TVs with four times (3,840 x 2,160 pixels) the resolution of 1080p (1,080 x 1,920 pixels) HDTVs. These 4K TVs are critical to TV makers because they are higher margin products than HDTVs.

However, the prices of 4K TVs are already plunging. in April 2013, Seiki launched a 50-inch 4K TV for $1,500. Vizio then undercut Seiki last month with a $1,000 50-inch 4K TV, which costs the same as Samsung's 50-inch 1080p HDTV. That rapid price decline is bad news for Samsung, which will likely have to abandon its higher-margin expectations for 4K TVs.

Vizio's $1,500 4K Smart TV. Source: Vizio.

Therefore, Icahn's expectations that Apple can sell 55-inch to 65-inch 4K TVs for $1,500 each in 2016 seems unrealistic. Not only is that price considered high today, but the market could easily be saturated by similar devices by 2016.

While sales of TV sets are expected to slump or remain stagnant, sales of higher-margin streaming devices -- such as the Apple TV, Roku, and Chromecast -- are projected to keep climbing. Research firm Parks Associates noted last August that streaming media device use had doubled since 2011. Moreover, Apple TV already controls 27% of that market, according to Strategy Analytics.

The Foolish verdict
Considering these factors, Icahn's request for an Apple Smart TV doesn't make any sense. It would be smarter for Apple to simply launch a new Apple TV set-top box to stream 4K content and secure new media partnerships for more content.

Although Apple certainly needs a new source of revenue besides the iPhone, iPad, and Mac -- which accounted for 83% of its top line last quarter -- selling 4K TVs would be the wrong play at the wrong time.