Swatch Falls as Factory Fire Disrupts Watchmaker Industry

Photographer: Gianluca Colla/Bloomberg

Wristwatches sit on display at the Jaquet Droz booth, a unit of Swatch Group AG, during the Baselworld watch fair in Basel in April. Swatch’s operating profit from components jumped 37 percent last year, helping generate a 23 percent increase in group earnings. Close

Wristwatches sit on display at the Jaquet Droz booth, a unit of Swatch Group AG, during... Read More

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Photographer: Gianluca Colla/Bloomberg

Wristwatches sit on display at the Jaquet Droz booth, a unit of Swatch Group AG, during the Baselworld watch fair in Basel in April. Swatch’s operating profit from components jumped 37 percent last year, helping generate a 23 percent increase in group earnings.

Swatch Group AG (UHR), the world’s largest watchmaker, fell in Zurich on concern that the destruction of a workshop that makes timepiece movements may disrupt the wider Swiss watch industry.

The stock dropped as much as 2.2 percent and was down 1.3 percent at 586.50 Swiss francs as of 4:14 p.m., the steepest decline in the 20-member Swiss Market Index. (SMI)

A fire yesterday morning destroyed a workshop of Swatch’s ETA unit at Grenchen, in the Swiss canton of Solothurn, the company said in a statement on its website. The cause of the blaze is unknown, the company said. No-one was hurt.

“It’s very serious,” Jon Cox, an analyst at Kepler Cheuvreux in Zurich, said in a telephone interview today. “It may have an impact on the whole Swiss watch industry as Swatch is the biggest supplier of movements.”

Swatch is fully insured for the damage caused by the fire, which may delay production by weeks or months, spokeswoman Beatrice Howald said by telephone today. The workshop made “standard movements” that are mainly sold to third parties, rather than used in Swatch’s own products, she said.

The ETA site is partially open today while an assessment takes place, Howald said. Swatch is analyzing whether soot damaged machinery outside the area that caught fire, she said.

Partially Open

While the watchmaker is able to source components from other sites, it’s unclear how quickly the company can adjust production to compensate for the damage, Cox said.

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 is estimated by analysts to make about two-thirds of the mechanical movements used in the timepieces made in the country.

The delay won’t cause a “major” impediment to production at Cie. Financiere Richemont SA, (CFR) the maker of IWC watches, Patrik Schwendimann, an analyst at Zuercher Kantonalbank in Zurich, said by telephone.

Swatch’s operating profit from components jumped 37 percent last year, helping generate a 23 percent increase in group earnings. The company has nonetheless looked to reduce the supply of movements to competitors and won a partial reprieve this year from Switzerland’s competition regulator on rules forcing it to sell components to third parties.

Reduce Supply

Swatch will be allowed in 2014 to reduce shipments of mechanical movements to other watch producers in Switzerland to 75 percent of the average between 2009 and 2011, the antitrust overseer, known as Comco in French and Weko in German, has said. That will fall to 65 percent in 2016 and 55 percent in 2018, the regulator said in a statement Oct. 25.

Swatch had won provisional backing from the regulator in 2011 to start cutting deliveries, forcing some of the companies to find other suppliers or invest in their own capacity. The regulator should allow Swatch to increase prices on watch components, L’Agefi reported Dec. 20, citing comments by Swatch Chief Executive Officer Nick Hayek.

To contact the reporter on this story: Giles Broom in Geneva at gbroom@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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