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Swatch fire seen affecting other watchmakers

Swatch Group Chief Executive Officer Nick Hayek Jr addresses the company's annual general meeting in Biel some 45 kilometres north of Bern M
Swatch Group Chief Executive Officer Nick Hayek Jr addresses the company's annual general meeting in Biel some 45 kilometres north of Bern M

By Alice Baghdjian

ZURICH (Reuters) - A fire that destroyed a workshop at a Swatch Group factory will affect other watchmakers it supplies more than the Swiss firm itself, as a break in production is likely to cut the availability of parts to an industry already facing bottlenecks.

Sunday's fire at a part of the plant that treats metals to protect them from rust could stop production of some components for several weeks, Swatch's chief executive said on Monday.

Swatch chief Nick Hayek said watchmakers that buy watch parts from its ETA Manufacture Horlogere unit, based in Grenchen, western Switzerland, would be most affected, rather than Swatch itself.

"It is a bigger problem for them than for us," Hayek told Reuters by phone.

Swatch, the world's biggest watch parts supplier has a near-monopoly on "movements", the mechanisms that drive the moving parts of a watch, and counts rival luxury groups Richemont and LVMH among its customers.

The world's biggest luxury group, LVMH, which owns the Tag Heuer, Hublot and Zenith watch brands, said it had no immediate comment, while a spokesman for Richemont could not be reached on Monday.

"ETA is by far the most important production site," said Kepler Cheuvreux analyst Jon Cox. "The structure of the building will have to be inspected for safety reasons, which means the whole complex will be out of action for a while, so there could be shortages of components."

Tired of its role as the industry's "supermarket", Swatch was granted the go-ahead by the Swiss antitrust authority WEKO in October gradually to reduce its deliveries to rivals.

BOTTLENECKS

The move could cause supply shortages for some players in the industry already exposed to bottlenecks due to the shortage of firms able to make the delicate internal mechanisms of watches as well as a lack of investment in training.

Hayek said third parties supplied by ETA would be advised by letter that there may be some delays to the deliveries of certain watch components.

"We need to clean all the machines and reorganize. There will be a small delay of three or four weeks to production, maybe a bit more," Hayek said.

The Swiss watchmaker, known for its colorful plastic timepieces and the high-end Omega brand, said it had another 150 factories it could fall back on.

Hayek played down the impact on Swatch Group of the fire, which gutted a 150 square meter workshop and damaged another with smoke, calling it a "relatively minor event" for the Swiss watchmaker.

Shares in Swatch pared losses slightly on Hayek's comments and were trading down 1.26 percent by 1515 GMT.

The cost of rebuilding the galvanic workshop destroyed by the fire, whose cause is unknown, would cost around 4 to 5 million Swiss francs ($4.5-5.6 million), Hayek said.

Police, who said on Sunday the cause of the blaze was unclear, did not comment further on Monday.

($1 = 0.8881 Swiss francs)

(Additional reporting by Astrid Wendlandt in Paris; Editing by Giles Elgood)

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