Nike Flees Wearables Ahead of Apple’s Game-Changing iWatch

Nike’s clearing house with its FuelBand team as Apple prepares to revolutionize the wearable tech space later this year.

Apr 22, 2014 at 9:00PM

As we barrel through April at a blistering pace, technology earnings season is set to hit its crescendo, with tech giant Apple (NASDAQ:AAPL) reporting tomorrow.

The specifics of the last quarter will be a key focal point tomorrow, but many investors will also look to Apple's coming report and conference call in hopes of gleaning any kind of insight into Apple's coming product-launch cycle later this year. Many observers and analysts, including yours truly, believe Apple is preparing to introduce its oft-discussed, but still-rumored, iWatch at some point this year.

In that vein, Apple's iWatch investment thesis recently got another major shot in the arm from none other than athletic-apparel superpower Nike (NYSE:NKE), whose recent move once again portends an Apple iWatch debut in the months ahead.

Nike waves the wearables white flag
Nike has undoubtedly been one of the most successful names in wearables thus far in this budding megamarket's early evolution. It was one of the first companies to create a mass-market wearable with its Nike+ pedometer, which launched in 2006, and integrated with Apple's iPods. And as one of the companies that continually pushed the limits on fitness devices, Nike has kept itself at, or near, the front of the pack in the early phases of the integrated fitness-devices market's brief history.

Nike Fuel Bands

Source: NIke

Its latest device, the Nike FuelBand, remains one of the most popular fitness trackers on the market today. (I'm admittedly a devoted user of my own FuelBand). Hard data in terms of device shipments for wearables is hard to come by, but one research firm estimated that Nike, Jawbone, and FitBit accounted for 97% of the fitness-tracker market last year. Suffice it to say, Nike remains one of the most important participants in this space today.

However, the company's place at the center of the wearables space is apparently coming to a screeching halt. According to reports, Nike fired the vast majority of its employees associated with its FuelBand division this week. Rumor has it that Nike's move is part of a planned transition away from producing its own branded wearable, making its FuelBand effectively dead in the water. These same reports also indicate that Nike still has every intention of maintaining its Nike+ software.

So, why would Nike kill a successful division so abruptly?

Why Nike's move should matter to Apple investors
It doesn't take a rocket scientist to connect the dots. From where I'm sitting, Nike appears to be backing away from the hardware side of things ahead of Apple's forthcoming iWatch, which will introduce functionality well beyond that of Nike's FuelBand to the health-monitoring market.

Now, I'll certainly grant that much of the evidence supporting this idea is circumstantial. However, with so many different storylines all supporting the Apple iWatch thesis, it seems more likely than not that Apple is preparing to revolutionize the smartwatch market, and has tipped Nike off in advance given their long working history together in the fitness-tracking space. As we saw above, the two companies have worked closely together since 2006. Apple has even gone so far as to poach some of Nike's fitness-tracking executives for what, at present, remain unnamed projects (again, read the iWatch).

Beyond just the specific relationship between Nike and Apple, there's also the growing body of evidence that also supports the iWatch storyline. The acquisitions and other luxury goods hires that Apple has made in the past also point to the preparation of a wearable. I'm a firm believer that Apple has an iWatch up its sleeve. In fact, it's one of the several reasons I still believe Apple's shares appear attractive at their present valuation.

At the end of the day, Nike's recent move, like most other iWatch storylines, falls short of completely tipping Apple's plans here. But with the evidence growing seemingly by the week, Apple's iWatch continues to seem all the more real as we head into Apple's product-launch season. Investors would do well to take notice before it's too late.

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Andrew Tonner owns shares of Apple. The Motley Fool recommends Apple and Nike. The Motley Fool owns shares of Apple and Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Jun 12, 2015 at 5:01PM

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