There is growing speculation that electronics giant Samsung is considering teaming up with Under Armour (NYSE:UA) to expand sales of its wearables. According to Yonhap news, Under Armour’s CEO Kevin Plank met with Lee Jae Yong, son of Samsung’s chairman Lee Kun Hee, earlier in July to discuss a possible collaboration to compete with Apple and Nike.  The two companies have worked together in the past: Samsung’s S5 Sport, a water-resistant and dust proof variant of the S5 phone, was co-developed with MapMyFitness, a fitness app maker that Under Armour acquired late last year. As a result of that partnership, S5 Sport buyers receive a 12-month MapMyFitness membership, offering premium features like audio coaching, training plans, heart rate analysis, and live fitness tracking.  In our note below, we take a look at why a partnership between these two companies could be mutually beneficial as competition in the growing wearables market intensifies.
- Is the Under Amour Stock Price Driven By Current Earnings or Sentiment?
- What Percentage of Under Armour’s Stock Price Can Be Attributed To Growth?
- How Has Under Armour’s Revenue And Gross Profit Composition Changed In The Last 5 Years?
- What Is Under Armour’s Fundamental Value Based On 2015 Results?
- Is Footwear Becoming A Big Business For Under Armour?
- How Is Under Armour’s Revenue & Gross Profit Composition Expected To Change In The Future?
Why does Under Armour need Samsung?
Under Armour makes its own wearable devices but being primarily a sports apparel and footwear company, its electronic hardware chops aren’t impressive. The company’s wearable device, the $100 Armour39 chest strap, can send the user’s heart rate to MapMyFitness or a companion watch, but both devices are inferior to similarly priced fitness bands from competitors like Fitbit, Jawbone, and Nike. Under Armour has been using MapMyFitness as an analytics platform and through the use of these apps, UA plans to find out the reasons for which people work out and the ways in which they do so, in order to be able to design apparel and footwear specifically tailored to their needs. MapMyFitness, which is available on iOS, Android, and Blackberry, is also available on Galaxy Gear 2. Therefore, with the integration of Samsung’s electronics and the MapMyFitness apps, Under Armour can reach a much wider range of users and use the data gathered from those users to design apparel for a potentially much larger audience than the one it currently addresses.
Why Does Samsung Need Under Armour?
As of the first quarter of fiscal 2014, Samsung controls over 7o% of the global wearables market. The company made about 500,000 shipments over the quarter on the back of the launches of the Gear Fit, Galaxy Gear 2, Gear Neo, and Gear Live.  It’s not entirely clear that Samsung knows what it is doing with these devices: the Fit runs on a real-time Operating Software, the Galaxy Gear 2 and Gear Neo run on Tizen, Samsung’s proprietary OS, and Gear Live runs on Google’s Android Wear. In addition, Samsung is also trying to convince third-party companies to license its Simband modular technology to make new smart watches with biometric sensors that can be swapped. 
More worryingly, Samsung’s 500,000 smart watch shipments in the first quarter seem puny compared to the forecast made by the research firm ON World for annual global smart watch shipments by 2018: 330 million. ((Report: 330 million smartwatches to ship by 2018, mobilehealthnews, July 2014)) Furthermore, if Apple launches its smart watch by the end of the year, sales of the wearable could be anywhere between 30 and 60 million units, completely beyond the current market size that Samsung is dominating.  Essentially, in the long run, Samsung wants to gain a firm footing in the consumer fitness market, like Apple and Google, which could ideally be integrated to the hospital-based market through cloud-based data. Hence, Samsung is hedging its bets on Under Armour, a company widely considered to be “the next Nike”. Apple has a long history of partnerships with Nike. It started in 2006, with the Nike+ iPod kit, which used a sensor in running or training shoes to transmit workout data to an iPod. Apple and Nike later expanded the arrangement to allow iPods to record detailed workout information from other compatible fitness equipments. Even recently, the two got into an alliance which will allow Apple’s HealthKit platform to receive data from Nike’s FuelBand along with other iOS compatible fitness bands(and apps) into a single iOS 8 app called Health. Samsung’s attempts at partnering with Under Armour are mere signs of imitation of the Apple-Nike relationship. Through it, Samsung hopes to be able to create competitive or better wearable devices with cross-compatibility features like Apple and Nike.Notes:
- Samsung may turn to Under Armour to rival Apple’s relationship with Nike, engadget, July 2014 [↩]
- Sprint announces Samsung Galaxy S5 Sport smartphone with focus on health and fitness, TechTimes, June 2014 [↩]
- Samsung Dominates Smartwatch Ecosystem, With Sony And Pebble Matching Each Other, Forbes, May 2014 [↩]
- How Samsung Plans to Unite the Next Wave of Health Wearables, Wired, May 2014 [↩]
- Apple iWatch Could Rival iPhone, iPad In Popularity, Morgan Stanley Predicts, International Business Times, July 2014 [↩]