SPECIAL REPORT - Mechanical Movements : Stormy weather for movements

December 2016

All crises are revelatory and speed up or crystallise – in the chemical meaning of the term – an embryonic situation. This is particularly true of the key sector of mechanical movements. The current watchmaking crisis – which we believe is not only situational but systemic – starkly reveals a serious issue: the current overcapacity in movement production. How did it come to this and who are the major players in this sector? What trends are to be expected? Europa Star has investigated.

SPECIAL REPORT - Mechanical Movements : Stormy weather for movements

Was it “written” from the start when Nicolas Hayek took the controversial decision to gradually cease deliveries of ETA movements to third parties? Was it imaginable at the time, in the wind of panic that started to blow among rival groups and brands, that this decision, deemed catastrophic at the time, would stimulate initiatives to such a degree? Today, while storm clouds are gathering and becoming a durable part of the landscape, supply now largely exceeds demand. To what extent? There is a basic method to do the maths: in mid-2016, Swiss watchmaking fell by about 16%. This figure roughly corresponds to the drop in ETA deliveries. But if, as Nick Hayek warned, ETA is effectively losing its dominance, which is not yet the case – far from it –, it is also largely due to the number of competitors that have acquired much greater independence.


Everything started around 2002-2003 when ETA and the Swatch Group clashed with certain ‘finishers’. The latter included Sellita and La Joux-Perret. They organised resistance and, at the same time, considerably bolstered their own production means. And that is only one example. The decision taken by the Swatch Group to gradually reduce its sales of mechanical movements to third parties and ultimately end all deliveries, except for a few carefully selected brands, also gave a very serious boost to rival watchmaking groups.

The late Nicolas Hayek’s wishes to “thus stimulate the development of alternatives” came true, and well beyond his expectations. Despite the risk, almost 15 years on, of backfiring on his own group’s interests! To deal with the threat identified in 2002, everyone started to gear up their industrialisation plans and win back their autonomy. Richemont made a considerable effort with its own manufactures, TAG Heuer embarked on industrialisation, and Rolex achieved full autonomy. All this ended up by cutting the umbilical cord that organically linked Swiss watchmaking to ETA. Not to mention the countless independent initiatives that were taken, the specialisations and the whole field of innovations that opened up. Because demand was everywhere. Everyone wanted to own their own mechanical movement. But not everyone had the necessary means.

“We are not a supermarket here for your weekly shop,” is what the Swatch Group essentially said. Indeed, for the past 30 years, the whole Swiss watchmaking industry had rushed to the aisles of ETA which offered a gamut of trusted, precise, tested and repairable movements. The most cunning players were quick to latch on. At the peak of the trend for mechanical watches, once they were properly packed, encased in gold and studded with diamonds, these rustic mechanical watches could fetch very large sums of money. Especially in the realm of new watchmaking conquests. Asia, the Orient, international hubs, new shopping malls, rich crowds of customers hitherto ignorant of watchmaking... Nicolas Hayek therefore had reasons to believe that he had become a cash cow, at least for some.

“We currently see that third-party orders have slumped to such an extent that we will no longer be in a dominant position by 2017.” Nick Hayek, Le Temps, 21 July 2016


The COMCO, the Swiss Competition Commission, managed more or less to keep a close watch and, through legal action and compromises, kindness and dirty tricks, the decision was taken ten years later. In 2012, the Swatch Group was officially allowed to apply its timetable: “a 15% reduction of deliveries of mechanical movements to brands using them for their own watches, and a 30% reduction to customers who also have a movement production unit but do not make their own completed watches.” That was just the beginning. As for strategic balance springs and assortments, for which the group holds a virtual monopoly (90%) through Nivarox, “an initial reduction of 5% on 2010 orders” was announced.

Today, with the advent of a systemic crisis that few headquarters had anticipated, what is the status of the supply of Swiss mechanical movements? Not forgetting that, in this new landscape, fresh ambitions are burgeoning. Citizen, for example, the global heavyweight in Japanese watchmaking, does not conceal its intentions and is calmly positioning its pawns in the Swiss game [see the article by Joe Thompson in this issue BRANDS - CITIZEN’s changing times]. Germany is seriously waking up. Nomos, for example, which became independent by producing its own movements and selling its reasonably priced watches successfully, has become a case study for others. Not to mention Chinese watchmaking, which our watchmakers still tend to look down on but which is spectacularly gaining ground in the improvement of its mechanical productions. So the battle looks tough and some people we met in the industry even talk about a ‘cold war’ of movements. A ‘war’ that is particularly tough given that stocks are full. It is even said that some major brands have stockpiles for one or two years! Not to mention the many retailers who are brimming over with goods.


The obligation on ETA to deliver to third parties runs until 31 December 2019. In 2016-2017 ETA was authorised to deliver no more than 65% of what it had delivered on average between 2009- 2011, ‘equally’ regardless of the customer. Has it stuck to this timetable? The question is worth asking.

“Have you heard it said that ETA lacked customers? I can’t criticise my salespeople for wanting to sell,” stated Nick Hayek to our colleague at Le Temps. “We never said we didn’t want to sell any more to anyone, but that we wanted to be able to choose our customers,” he also explained. Is the giant doing a U-turn? And what will happen between now and the fateful date of 2019? The situation is so confused that no-one will hazard a guess. The crisis has turned everything upside down. And we can’t forget another factor: the arrival of the connected watch which has just further muddied the waters. What will become of the mechanical watch? Will it lose its status once and for all? No one we interviewed believes that scenario and all are convinced that the mechanical movement, that ‘cultural product’, is here to stay. In the meantime, the anxiety remains palpable.

“Within a year or so, the market will include too many manufacturers of entry level mechanical calibres priced between 50 and 300 francs. ETA has resumed delivery of movements, opening the door to very competitive prices,” Valérien Jaquet, a manager at Concepto, in La Chaux-de- Fonds, told Europa Star.

“Supply of movements on the market is too high, it’s becoming a real problem,” added Jean-Daniel Dubois, of Vaucher Manufacture.

Sébastien Gigon, of Technotime, is extremely angry and does not beat about the bush, telling Europa Star that he is “very surprised at ETA’s U-turn, which we believe is unethical. You can’t take legal action [through COMCO] to reduce deliveries, call on alternative solutions then change your position according to market conditions. It’s neither consistent nor the right attitude for an industry leader. Nicolas Hayek Senior had a vision that saved the Swiss watchmaking industry. Now, the whole ecosystem is threatened. People have invested heavily. So is it all a Machiavellian plot to get rid of alternative suppliers? Ronda will also suffer, having invested 25 million francs. For the time being, we can’t see any reactions among our competitors, but they will come. We cannot take ETA to court as they have taken all the right precautions through their legal advisers. We’re attacking them from an ethical angle. Legally, we can do nothing but morally, it’s not right.”

Not everyone, however, is fundamentally upset at seeing ETA return to centre stage and put things back in order – as the “vacuum” created was rapidly filled, but not always with the most Swiss of pedigrees... Pascal Dubois, co-director of the Dubois Dépraz movement manufacture and specialist of the additional module, present at the EPHJ show with a range of new features, agreed that “when ETA closed the tap, it opened opportunities for ‘cheats’. If reopening it may get rid of those that did not make genuine Swiss made movements, at least it will clean up the market.”


Against this strained backdrop and in these circumstances that offer very little medium-term (never mind long-term) visibility, several projects and developments, requiring heavy investment, are nevertheless coming to maturity.

At Baselworld this spring, ETA was back with a stand, after being absent since 2011. A stone’s throw away, Ronda, previously restricted to the quartz field, where it is the only genuine credible Swiss competitor, launched its first mechanical movement with much fanfare. This development had been in the pipeline for several years and required very heavy investment – around 25 million Swiss francs. At the same time, Oris announced its intention to gear up with its own movements [on this subject, see our article in the previous issue of Europa Star 3/16]. Eterna Movement also announced new ambitions... These are just some of the most representative examples. To establish the facts, Europa Star tried to take stock of the current situation.

Collating all this information and these opinions was not an easy task. People are obviously afraid of the giant Swatch Group. (The Swatch Group did not respond to our efforts to contact them or to our requests for interviews). In the past 10 years, ETA has continued major R&D efforts and has managed to develop COSC certified movements for watches under 1,000 Swiss francs on existing foundations and has managed to increase the power reserve of basic movements up to 3 days. ETA keeps these ‘new’, more high performing movements for the group’s brands – which can be considered fair enough but which gives them a decisive competitive edge. “The concentration process will continue during the current crisis and I am convinced that the major dominant groups secretly dream of the survival of only 30 or 40 brands,” confided an anonymous specialist in the field. And very recently, in July, ETA increased its prices by 1.8% across the board (COMCO forces it to sell at the same price internally and externally). Meanwhile, a new battle is looming on the horizon. As another of our anonymous sources explained, “ETA  cannot afford to dump as they still have the monopoly. And according to the agreement with COMCO, it would be illegal for them to increase the number of customers to whom they deliver. They therefore want to modify this agreement so that, in the event of fewer orders being placed than expected by their current customers, they may be free to deliver to whomever they want.” This has not yet been settled. But a certain weariness, including at COMCO, is beginning to set in. This state of affairs has lasted too long. Some believe, “we should now let everyone do what they want to do.”

Will the crisis lead to a consensus? No one can claim that yet.

See the article: SPECIAL REPORT - Mechanical Movements - Who does what? Who thinks what?

Source: Europa Star 4/16 Autumn 2016 Magazine Issue