Swatch Allowed to Cut Only Movement Sales, Regulator Says

Swatch Group AG (UHR), the biggest manufacturer of components for Swiss watches, won a partial reprieve from the country’s competition regulator on rules forcing it to sell mechanical watch mechanisms to third parties.

Swatch will be allowed in 2014 to reduce shipments of mechanical movements to other watch producers in Switzerland to 75 percent of the level in 2010, the antitrust overseer, known as Comco in French and Weko in German, said in a statement today. Comco said it will renegotiate a preliminary agreement with Swatch that would have ended sales of all movements and other watch parts by 2025, saying it now sees scaling back supplies of component sets as premature.

Comco’s stance on letting Swatch reduce its role as a supplier “is more about the timing rather than being ruled out,” said Jon Cox, a Zurich-based analyst at Kepler Cheuvreux. “The components are the sticking point.”

The owner of the Omega brand has been required to supply movements, the mechanisms that make watches tick, to other Swiss watchmakers because of its dominant position. The ETA unit of Biel-based Swatch is estimated by analysts to make about two-thirds of the mechanical movements used in the timepieces made in the country. Swatch’s operating profit from components jumped 37 percent last year, helping generate a 23 percent increase in group earnings.

Stock Declines

Swatch fell as much as 2.1 percent to 545 Swiss francs, the biggest intraday decline since June 21, and was trading down 1.7 percent at 1:33 p.m. in Zurich. That pared the stock’s gain this year to 19 percent.

A temporary measure allowing Swatch to reduce component sales to 95 percent of the 2010 level will run to the end of this year, Comco said. The regulator said Swatch needs to ensure that it treats all customers the same.

Swatch said it’s disappointed that Comco wants to revise the preliminary terms for the company to end its role as an industry supplier, given that no competitors have emerged.

“The lack of interest of the players in the Swiss watch industry to create novelties or to become more independent from Swatch Group is amazing,” Chief Executive officer Nick Hayek said in a statement. “We regret that Comco has not taken a definite decision.”

Reviewing Market

Comco said it wants to see how the market for components develops in coming years before agreeing to reductions in that segment. Makers of Swiss watches such as Cie. Financiere Richemont SA (CFR) and Hermes International SCA (RMS) have been competing to acquire producers of components in recent years.

“This may just be a postponement of complete deregulation,” Allegra Perry, an analyst at Cantor Fitzgerald, wrote in a note to investors.

Swatch, which is also the world’s biggest watchmaker, won provisional backing from the regulator in 2011 to start cutting deliveries to competitors, forcing some of the companies to find other suppliers or invest in their own capacity.

Sellita Watch SA, a competitor of ETA, is continuing to invest in boosting production to eventually become independent of deliveries from Swatch, Miguel Garcia, owner and chief executive officer, said by e-mail.

“The competition commission has understood the situation very well,” he said. “I’m satisfied with the decision.”

To contact the reporter on this story: Thomas Mulier in Geneva at tmulier@bloomberg.net

To contact the editors responsible for this story: David Risser at drisser@bloomberg.net; Celeste Perri at cperri@bloomberg.net

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