The company will continue to provide swimwear for colleges and sell to traditional retail customers. But it will not compete against the likes of Speedo to get the swoosh on the world's top swimmers.
"We will not invest in next-generation swim innovation, which is not in line with our stated category growth strategy," the company said in a statement.
Nike said it made a "strategic decision as part of the company's long-term growth plan."
The Beaverton, Ore.-based company had announced several years ago that it would focus on six key categories to reach a $23 billion revenue goal by 2011. Those categories are running, soccer, basketball, men's training and women's training and sportswear.
CNBC reported this weekend that Nike may be halting its swimsuit development after a showdown at the Beijing summer Olympics. Nike lost some of its edge at the games when Speedo stole the spotlight with its LZR Racer suit.
According to Speedo, of the 77 world records set since the release of the suit in February, 72 have been in the LZR Racer. And it was worn by Olympics darling Michael Phelps.
Other swimmers clamored to get the suit at the games. Nike even allowed some of its athletes to wear the LZR Racer, an unprecedented move by the world's largest athletic shoe and apparel company.
But Nike denied that Monday's decision was a direct result of Speedo's success, saying it was a "direct result of our long-term growth strategy focusing on the areas where we can have the largest growth."
Research organization The SportsOneSource Group said Nike is a distant third in the $200 million performance swimwear marketplace - which encompasses consumer swim goods for exercise rather than leisure. Speedo holds roughly 60 percent of the market share, up from 54 percent last year. TYR comes in second at 20 percent and Nike is third at 13 percent, lower than its 18 percent share last year.
Speedo said Nike's move would not have much impact on its own business, such as the launch of the Racer to general consumers in October.
"We've been in the swimwear business for 80 years," said Stu Isaac, senior vice president of team sales and sports marketing for Speedo. "We are going to keep doing what we've been doing.
But Evan Morgenstein, an agent who represents a number of top swimmers, said Nike's decision is a blow to elite athletes who depend heavily on apparel companies for their funding - especially in non-Olympic years.
Morgenstein's clients include Nike-endorsed Olympians Cullen Jones, Brendan Hansen, Aaron Peirsol and Jason Lezak.
Morgenstein said Speedo and TYR Sport are the only two major companies left in the U.S. now that Nike has pulled out - and they are embroiled in a bitter antitrust lawsuit filed by TYR against Speedo and USA Swimming.
"And then there was two," Morgenstein said. "The truth is that
Morgenstein worries that Nike's decision could be a precursor to other funding woes that might directly affect the performance of the powerful U.S. swim team at the 2012 London Olympics.
"With the tough economic times we're in, Speedo is probably looking at their investment in terms of the athletes, and I'm sure TYR is, too," Morgenstein said.
He called on the U.S. Olympic Committee and USA Swimming to come up with a new funding structure that gives more money directly to elite athletes, instead of putting the bulk of it into training centers that are designed to help the sport at the grass-roots level. Morgenstein said the current monthly stipend of $1,750 to top-level swimmers is "absurd."
"The financial house of cards for a lot of elite swimmers, especially the older ones, may come crumbling down," he said. "In non-Olympic years, many swimmers depend on up to 90 percent of their funding from the apparel companies."
"You're going to see a lot more athletes from China and Europe on the medal stand unless something is done," Morgenstein predicted.
A USA Swimming representative was not immediately available for comment.