How Apple Inc. (Nasdaq: AAPL) Will Dominate the Wearable Tech Wars

Apple Inc. (Nasdaq: AAPL) has quietly been putting together a strategy that will allow it to gain the upper hand in a wearable tech market that is forecast to explode over the next few years.

Apple is expected to introduce its long-awaited iWatch device before the end of the year, but that's just one small part of what the Cupertino, Calif.-based tech giant has planned.

Apple is very close to having the pieces in place to revolutionize yet another industry, just as it has done with computers, music, and mobile phones.

It's exactly the sort of boost that Apple stock has needed for the past year as investors have awaited the company's Next Big Thing.

Wearable technology is the next chapter in the story of the "mobile wave," which started with the introduction of the iPhone in 2007.

But while sales of mobile devices like smartphones and tablets have started to flatten, the new category of wearable tech - smartwatches, smart wristbands, and headsets like Google Inc.'s (Nasdaq: GOOG) Google Glass - is poised to break out.

According to a February report by research firm Canalys, wearable tech will graduate to become a "key consumer technology" this year. The firm predicts the smart wristband segment alone will grow from 8 million this year to 23 million in 2015 and more than 45 million in 2017.

And a Juniper Research study at the end of last year forecast that retail revenue from the wearable technology market will grow from $1.4 billion in 2013 to $19 billion in 2018.

With sales of Apple's iPhone and iPad flattening, and mobile competition from other device makers like Google and Samsung Electronics (OTC: SSNLF) getting tougher every quarter, the company needs to become the undisputed leader in the wearable tech category.

What Apple has done is fixate on the single most compelling aspect of wearable tech - the one thing that will drive the most people to buy and use wearable tech devices - and apply its philosophy of vertical integration as only Apple can.

While Apple has made no formal announcements, there's plenty of evidence to show that it fully intends to make health the focus of its wearable tech strategy.

But it's given plenty of hints.

"There's lots of things to solve in this space," Apple Chief Executive Officer Tim Cook said at last year's D10 conference, adding that wearable tech is an area that is "ripe for exploration." Cook also said "the whole sensor field is going to explode."

Clearly, Apple isn't the only company looking at the powerful combination of health and wearable technology. But with its expertise in integrating hardware, software, and the cloud, not to mention its pedigree for world-class design, Apple is by far the most likely to do it better than anyone else.

Here are some of the other clues to Apple's plans:

• A Meeting of Minds: A group of senior Apple executives met with the directors of the Food and Drug Administration last fall, which makes little sense unless Apple wanted their input as it crafted its wearable tech plans. Apple also hired a world-renowned fitness expert, Jay Blahnik, last year.

• The M7 Chip: This chip, first used in the iPhone 5S, has built-in motion-tracking capabilities, which makes building hardware with health-monitoring features that much easier.

• The iWatch: Most of the rumors about the Apple iWatch have focused on the possibility of a curved screen and what sort of apps it might run. But the iWatch will be less a "watch" or a phone for your wrist than it will be a health-monitoring device. It is expected to include sensors capable of tracking the user's heart rate, blood pressure, hydration, and glucose levels, and probably more.

• Using Your Heads: Apple was granted a patent in February for a "sports monitoring system for headphones, earbuds, and/or headsets." The patent describes devices that, like the iWatch, would use sensors to monitor the wearer's health.

• Healthbook: Apple may have some impressive hardware in the pipeline, but it will need killer software to be truly useful. And that's where Healthbook comes in, an iPhone app expected to arrive with iOS 8 later this year. The Apple news site 9 to 5 Mac this week published extensive details of the software, complete with screenshots. Healthbook is designed to capture the data collected by Apple's (or maybe even third-party) wearable tech devices in an easy-to-use app, probably via a secure Bluetooth connection.

It's not hard to see how Apple could use health monitoring not just to set itself apart in the wearable tech segment, but to revolutionize how personal health data is collected and used.

The health data could easily be transmitted by the user's iPhone in real time to a server in their family doctor's office.

Apple has a big beachhead in the healthcare industry with its "electronic health record" (EHR) iPhone and iPad apps. If Apple also has the wearable tech to transmit data to those apps, it would have most of this young market all to itself - just the catalyst that Apple stock needs to push it back to $600, or even $700.

Healthcare professionals are already using iPads and iPhones to coordinate patient information coming from other devices like ultrasound wands and ECG monitors. A new generation of Apple-branded wearable tech will simply take all that a step further.

"The possibilities for HealthBook are absolutely staggering and Apple has the potential to re-invent and capitalize on the growing trend to monitor everything we do and crunch the numbers in the pursuit of better health," ZDNet's Jason O'Grady wrote in a February column.

Would you buy an Apple wearable tech device to monitor your health? And do you think health-focused devices will be a big category for Apple in the years ahead? Tell us on Twitter @moneymorning or Facebook using #wearabletech.

While everyone is focusing on the big players in wearable tech like Apple, Google, and Samsung, investors have a better chance of getting bigger returns by digging a little deeper. Here are five stocks to buy to profit from the wearable tech revolution...

Related Links:

• 9 top 5 Mac:
  This Is Healthbook, Apple's Major First Step into Health & Fitness Tracking
• ZDNet:
  Forget the iWatch, Apple's Next Big Thing Is Health
• Business Insider:
  Apple May Be Developing Fitness-Tracking Headphones