Swatch Group Under Antitrust Investigation

Big news regarding the worlds largest watch manufacturer, The Swatch Group, came out today unfortunately it's not really of the positive nature for them. It was announced that they were being investigated by a Swiss antitrust body for possible abuse of its dominant market position. Those in the know were well aware of The Swatch Groups plan, announced in 2004, to stop selling blank movements to outside watch companies. This sent something of a shock wave through an industry that heavily relied on their ETA brand of mechanical movements. Swatch Group co-founder Nicolas Hayek [pictured] claimed that he felt as though the industry needed to be shaken up, and that he wanted to spur more innovation. At that time they were investigated by the same antitrust body where a deal was struck that ETA would continue to provide blank movements through 2010 to give time for the Swiss watch industry to plan and adjust to the change. Since that announcement from The Swatch Group and with 2010 looming several higher end manufacturers that traditionally relied on ETA to supply blank movements did begin creating their own in-house movements.

Full text of article from Reuters:

ZURICH, Sept 15 (Reuters) - The Swiss competition watchdog has launched an investigation against Swatch Group (UHR.VX) unit ETA Manufacture Horlogere Suisse SA for potential abuse of a dominant market position.

A pre-investigation yielded signs ETA had abused its potentially dominant position in the market for mechanical clockworks, the Competition Commission said on Tuesday.

Swatch Group, the world's largest watchmaker and best known for colourful plastic Swatch watches, said it was confident the results of the investigation would be positive.

"The timing for such an investigation is rather bad as since the beginning of 2009 most of the third-party clients have massively cancelled or postponed their orders," a spokeswoman for the group said in a statement.

Third-party watchmakers have cut back on orders for components from Swatch Group as the Swiss watch industry grapples with its sharpest drop in demand in around 20 years as a result of the economic slump.

The commission was mainly investigating whether ETA sold products at better conditions than other Swatch Group companies than to third-party firms, Patrik Ducrey from the commission said. The investigation was set to take about one year.

At 0754 GMT, shares in Swatch Group had slipped 0.7 percent to 236.80 Swiss francs, while the DJ personal and household goods index was flat..SXQP

The commission said it had received a number of complaints after ETA raised prices and announced new payment conditions last year.

ETA had already been investigated in 2004 after announcing it would stop delivery of clockwork kits -- so called Ebauches -- where it had market share of over 95 percent in the relevant market. The case was settled after ETA agreed to continue supplying Ebauches until the end of 2010. (Reporting by Sven Egenter; Editing by Dan Lalor)

* Watchdog to check if ETA abused market dominant position

* ETA produces mechanical clockworks

* Swatch shares down 0.7 pct, under performing European peers

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In a press release issued from The Swatch Group regarding the opening of the investigation they stated:

"The Swatch Group is confident that the results of this investigation will again be positive for ETA.

However, the timing for such an investigation seems unfortunate. Since approximately once year, the majority of the external ETA clients have massively cancelled or postponed their orders, without any consideration for the ETA personnel, its infrastructure nor the investments which have been considerable also at ETA due to the continuous pressure of the COMCO as a consequence of the complaints from third parties."

At last check Swatch Groups stock was down slightly over 1%, probably due to the announcement.