There will probably always be a market for expensive jewelry that goes on your wrist and tells time, so Swatch is probably okay, but honestly, Nokia and Blackberry were saying the exact same thing a few years ago about phones, and that didn't work out so well for them.
Not saying it'll be the same this time around, but you never know.
Regardless, this is pure speculative science fiction, but if you're going to make an iWatch-thingy that takes some of the place of an iDevice and sits on your wrist, how about making a larger wristband-thing with a curved screen roughly landscape-iPhone size? I'm not saying it'd necessarily be a big seller--probably more Cyberpunk than something people would actually wear--but I, personally, would be more likely to put one on my forearm than an iWatch combined with an iPhone in my pocket.