Swatch Under Investigation By Swiss Competition Watchdog

Swatch Group AG (UHR.VX) Wednesday said the Swiss competition commission had launched an investigation against it.

"This investigation was initiated by Swatch Group and should determine which mutually agreed solution is available to allow Swatch Group to reduce gradually its deliveries of mechanical watch movements and assortments to third parties, in the interest of the entire watch industry," Swatch said in a statement.

Swatch, the world's largest watch-making company, supplies movements and other parts to other watchmakers in Switzerland through its manufacturing operations.

In terms of volume, Swatch controls 70%-80% of the sector's watch-movement production, according to a research study published last month by the investment firm Sanford C. Bernstein & Co.

"People assume that it's a good business to sell components, but the only really attractive business is to sell finished products of our brands," Chief Executive Nick Hayek told the New York Times in May.

"We are in a ridiculous situation that would be like having BMW supply all the engines for Audi and Mercedes. In no other industry do you have one company supply all the critical parts to the people who then compete directly with it."

The Biel-based manufacturer, which numbers Tissot, Longines and Omega among its brands, has been experiencing a sales boom this year fuelled by soaring demand in Asia, and has suffered shortages of some parts, particularly hands.

Swatch Group, which in February reported record revenue and profit for 2010, is facing an exceptional situation this year, with strong demand for all of its brands including the ultra-premium Breguet.

Chief Executive Nick Hayek said in May he wanted to add up to 2,000 employees this year to his 25,000-strong workforce and expand factory capacity to increase production.

"We want to increase the capacity for cases, hands, and bezels. We need extra production lines just to meet the demand, there is a lot that needs to be done," Hayek said in March.

-By John Revill, Dow Jones Newswires; [phone] ; [e-mail]