UPDATE 1-Competition body says Swatch must slow cuts in supplies

Fri Jul 12, 2013 7:38am BST

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* Weko blocks Swatch plans to cut third party deliveries

* Swatch will renegotiate to partly cut deliveries in 2014

* Good news for rivals struggling for supplies (Adds Weko, Swatch Group, Sellita, analyst comments)

By Silke Koltrowitz

ZURICH, July 12 (Reuters) - Swiss competition authority Weko said it wouldn't let Swatch Group cut supplies of movements and other components to rivals as much as the Swiss watchmaker would like, a move likely to reassure smaller watchmakers.

Weko said, however, it agreed on the principle that Swatch, which supplies essential watch components to almost the entire watch industry, should be allowed to gradually reduce deliveries of mechanical watch movements under certain conditions.

"A reduction (of watch movement deliveries) by another 10 percent in 2014 seems acceptable," Weko said, adding it was too early to cut deliveries of the key "assortiments" - the heart of each mechanical watch movement.

The news is likely to reassure rivals like Richemont and LVMH, as well as smaller watchmakers which have been struggling to find alternative suppliers for the important regulating parts that make a watch tick - so-called "assortiments", that are made by Swatch's Nivarox unit.

"The Weko commission decided there were too few sourcing alternatives for 'assortiments'," spokesman Patrik Ducrey told Reuters over the phone.

Swatch, facing the expiry of provisional measures at the end of the year if it doesn't negotiate a new supply deal with the authority, said it was disappointed.

"Swatch Group regrets that Weko has not reached a definite decision," Chief Executive Nick Hayek said in an emailed statement. Spokeswoman Beatrice Howald said Swatch would accept Weko's proposal to renegotiate the deal.

Swatch had asked Weko in 2011 to start an investigation into how it could phase out deliveries of movements and components it has a quasi monopoly on, forcing rivals to build their own production capacities and causing a wave of acquisitions of suppliers.

Weko had put in place provisional measures allowing Swatch to reduce supplies of movements made by its ETA unit and assortiments, in 2012 and 2013.

Kepler Cheuvreux analyst Jon Cox said the news was unfavorable for Swatch. "It looks like they have to go back to the drawing board and I guess the phase out period will be further extended."

He said small players, which had fewer resources to build their own capacities, would benefit most from this development.

"This is good news for us, we can now take our time to build our own production capacity for 'assortiments'," Miguel Garcia, head of independent watch movement maker Sellita, told Reuters. (Editing by Mark Potter)

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