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UPDATE 1-Connected or mechanical? TAG Heuer tries to bridge gap with module watch

(Adds LVMH watch head's comments, context)

By Silke Koltrowitz

BRUNNEN, Switzerland, March 14 Swiss watchmaker TAG Heuer, owned by LVMH, sought to appeal to tech geeks and traditionalists alike on Tuesday by launching a connected watch that lets wearers switch between a smart watch head and a traditional mechanical movement.

Watch exports fell some 10 percent last year as sales of traditional Swiss timepieces slowed.

But Jean-Claude Biver, head of LVMH's watch business, said: "We're seeing a really spectacular rebound in mainland China, and this, thanks to tourism, is helping other markets as well."

TAG Heuer's connected watch looks traditional. But the round watch case, containing the module that displays the time and information from the applications installed, can be unfastened from the watch strap and replaced with a separately sold watch case which looks almost identical, but has a traditional dial instead of a screen and contains a traditional mechanical watch movement.

TAG Heuer is trying to overcome the apparent contradiction between Swiss mechanical watches -- powered by gearworks invented centuries ago and designed to last decades -- and the latest technology to win new customers.

Biver, launching TAG Heuer's second-generation connected watch in Brunnen, was echoing comments by Swatch Group Chief Executive Nick Hayek in a newspaper interview.

Biver said TAG Heuer aimed to sell 150,000 pieces in 2017 and would launch a smaller unisex version in October. Despite an investment of over 10 million Swiss francs ($10 million), the connected watch was profitable, he said, adding TAG Heuer had sold 56,000 pieces of the first-generation connected watch.

Thanks to a technology transfer from partner Intel Corp , the watch can be assembled in Switzerland, thus qualifying for the traditionally coveted "Swiss Made" label.

The basic TAG Heuer Connected Modular 45 will cost $1,650 for a watch module based on Google's Android Wear 2.0, with a built-in GPS and NFC contactless payment chip. An extra $4,000 can buy a mechanical watch module and a more expensive version is also available.

Market research firm Strategy Analytics estimates that 21 million smartwatches were sold in 2016. During the fourth quarter, Apple Watch took 63 percent of the smartwatch market, or 5 million devices. Samsung was second with 10 percent, down from 16 percent in the year-ago quarter. ($1 = 1.0086 Swiss francs) (Additional reporting by Eric Auchard in Frankfurt. Editing by Michael Shields/Ruth Pitchford)

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