Swatch: Ready For Net Time?

The watchmaker is looking for a high-tech blockbuster

You're toweling off after a swim when your wristwatch-phone starts beeping. You tap a button, and--presto, you're talking to your broker. While you chat, you tap another button and log on to the Internet to check the performance of a stock he's recommending. Far-fetched? Not to Nicolas G. Hayek, chief executive of Swatch Group Ltd. The flamboyant Lebanese-born engineer who revolutionized the watch business in the 1980s is looking for his next breakthrough. He's putting a Swatch wristwatch-phone on the market this year, as well as a watch equipped for Internet access. He's also working with Hewlett-Packard Co. to develop even more advanced watches.

There's no doubting Hayek's enthusiasm. His office in Biel, Switzerland, is cluttered with Swatch inventions, including designs for a hybrid battery-and-gasoline powered car. Yet isn't the watchmaker getting distracted with gimmicks? "Some people considered the Internet to be a gimmick," he says. Hayek admits that his new gizmos may not become best-sellers. "But even if a product is used by 20% of consumers--20% of consumers, you cannot ignore," he says.

Hayek, who owns nearly 40% of Swatch, is riding high these days. Fueled by Asia's recovery and record U.S. consumer spending, Swatch turned in its best performance since 1992 last year, and its stock price doubled. Sales were up 10.9% to $2.2 billion and profits jumped an estimated 20% to $258 million. Yet sustaining that pace will be tough, because the watch market is growing at less than 5% a year.

Hayek's quest for a blockbuster new product is also proving difficult. A couple of attempts have misfired, including a prototype wristphone that was too bulky to market and a stake in DaimlerChrysler's troubled Smart Car project, which Swatch sold back to the auto maker. Some doubt that his newest offerings will fare much better. While the mobile-phone industry is racing toward the Internet, the Swatch wristphone being launched this year won't offer Web access. The Internet Swatch is an awkward contraption that has to be used with a computer terminal and a special mousepad. "All of Swatch's attempts to diversify have been a flop," says Frederick Hasslauer, an analyst at Bank Sal. Oppenheim in Zurich. "Mr. Hayek is an extremely good salesman, but he gets carried away by his own enthusiasm."

BRAND POWERHOUSE. He certainly scored big starting in the early 1980s by turning the whimsical, $30 Swatch into a fashion accessory. More recently, as competition has stiffened, he has opened his own retail stores. Swatch now has 300 stores worldwide and plans to open 200 more by the end of 2001. Hayek is also rolling out new models such as the ultrathin Swatch Skin, priced at $60, and an aluminum-encased sport model, the Swatch Irony Scuba 200, priced at $70. Overall, his company now accounts for more than 50% of the Swiss watch industry with Swatch owning a stable of brands, including Omega, Longines, Tissot, and Calvin Klein. He paid an estimated $75 million last year for French watchmaker Breguet.

Time is running short for Hayek, 72. He plans to step aside from day-to-day-management within two years, probably turning that job over to his son. Meantime, the quest for a hot product goes on. One possibility: A watch with a smart chip that acts as a debit card. Who knows? This master watchmaker could still have a winner in his toolkit.

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