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EDITIONS
Monday, 8 July, 2002, 16:49 GMT 17:49 UK
Digital TV woes hit Pace profits
Sky+ video recorder
Pace is to sell Sky+ video recorders at below cost price
Pace Micro Technology, the UK television set-top box maker, has unveiled sharply lower sales and profits, blaming "difficult" conditions in the digital TV market.

The company said annual profit before tax and one-off costs came in at 13.1m, down 70% from the previous year.

Pace in 2001-02
Profits down 70% to 13.1m
Sales down 33% to 351.8m
Shares down 81% to 89p
The news lopped more than a quarter off the value of Pace shares, leaving the company valued at less than 90m - a fall of 97% from its peak during the tech boom.

The company's admission of difficulties, and warning of tough times ahead, came the week after the UK's television regulator rewarded digital TV licences formerly held by collapsed broadcaster ITV Digital.

ITV Digital was hobbled by a costly deal to broadcast non-Premiership football and Pace is hoping to benefit from a new BBC free-to-view digital terrestrial TV service that will replace it.

The 24-channel service to be launched in the autumn will be available through set-top boxes such as those made by Pace.

Past its peak

Pace said its deteriorating performance reflected weaker demand and lower prices amid stiffening competition in the market for set-top boxes.

"Turbulent conditions in the broadcasting market have caused delay and disappointment," said chief executive Malcolm Miller.


The US market remains highly competitive and increasingly uncertain for Pace

Lionel Rayon, technology analyst

The company also said it expected things to worsen in the first half of its current financial year.

Mr Miller said growth of Pace's UK market was now past its peak, citing the UK's 40% digital TV penetration rate, twice the European average.

'Increasingly uncertain'

And one analyst cast doubt on the company's prospects elsewhere.

"The US market remains highly competitive and increasingly uncertain for Pace," said Lionel Rayon, technology analyst at Schroder Salomon Smith Barney.

Pace said it had sold 53,000 decoders for free-to-view digital terrestrial TV, priced at about 100, since their retail launch in the UK at the end of March.

Demand for the decoders is expected to rise once the BBC kicks off a marketing campaign for its new service.

Delayed

In other comments, Pace said it was pressing ahead with plans to cut its workforce by 20%.

The advertising downturn and a tougher investment climate have hit digital TV broadcasters hard this year, dragging suppliers such as Pace down in turn.

The company lost one major customer when ITV Digital collapsed earlier this year.

And Pace's contract to supply set-top boxes to NTL was delayed after the heavily-indebted cable TV firm was forced into bankruptcy in May.

Last week, Pace's shares lost more than 40% of their value after the company said it had agreed to sell Sky Plus video recorders at below cost price under a new deal with satellite broadcaster BSkyB.

The company said the new BSkyB deal would cut profits by about 8m next year, but said it expected it to generate cash in the longer term by increasing subscriptions to the Sky Plus service.

Pace shares closed on Monday at 37p, down 12p on the day, and 35.25p on their close a week before.

The shares topped 1200p in March 2000, at the height of the dot.com boom.

 WATCH/LISTEN
 ON THIS STORY
The BBC's Sarah Pennells
"Over the coming months there will be increased pressure on consumers to switch to digital"
See also:

02 Jul 02 | Business
08 May 02 | Business
27 Apr 02 | Media reports
15 Apr 02 | Business
08 Feb 02 | Business
17 Jan 02 | Entertainment
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