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Swiss antitrust body blocks sales of Swatch's ETA watch movements from 2020

Swiss competition authority Comco is temporarily prohibiting Swatch Group AG from selling mechanical movements produced by its component-making unit ETA SA Manufacture Horlogère Suisse to major watchmakers for potentially the whole of 2020, Bloomberg News reported Dec. 19, citing a statement from the regulator.

The decision comes as Comco seeks to determine whether there is enough competition in the Swiss-made mechanical movements market, the report said.

The ban will take effect in January 2020 and can last until the end of the year, although the antitrust regulator expects to release its decision around summer 2020, according to the report. However, Swatch can still sell the components to smaller watchmakers, Bloomberg reported, citing Comco director Patrick Ducrey.

The regulator opened an investigation against Swatch in 2011 to look at how ETA, which was then the leading watch movements supplier in the market, can gradually reduce sales of the component to third parties "in the interest of the entire watch industry," according to Swatch's announcement at the time.

In 2013, the parties reached an agreement that will allow Swatch to scale down deliveries in stages. The settlement is valid until Dec. 31, 2019, after which ETA will be freed from its obligations to supply customers with watch movements.

In a statement released ahead of the ban, Swatch said Comco's decision is based on a "false and outdated" premise and said the market situation for watch movements has changed drastically since the settlement in 2013.

In addition, it said Comco "is effectively driving ETA out of the market" with the decision, while paving the way for another dominant player to take over the field.

"ETA is no longer the market leader in this sector," the company said. "Due to the settlement reached in 2013 and the will of Swatch Group, production volumes and capacities have been reduced year after year. At the same time, other players significantly increased their own production levels and, as in the case of Sellita, far exceeded those of ETA."

According to Swatch, which owns over a dozen brands including Longines and Tissot, rival Sellita Watch Co. produced and supplied 1 million mechanical movements in 2019, which was roughly twice as many as ETA.

"[C]ustomers are no longer dependent on ETA. It is absurd and unacceptable, given the new situation, that Comco is now completely prohibiting ETA from supplying its customers with movements. The provisional measures have no legitimacy. The prerequisites for a delivery ban have not been met," Swatch said.

The Swiss watchmaker said it could seek damages for the negative financial impact the provisional ban will entail. It is also requesting that the agreement signed in 2013 be terminated as planned at the end of 2019.

Swatch shares dropped 1.5% in Zurich following the news.

Swatch and Comco did not immediately respond to S&P Global Market Intelligence's request for comment.