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Pace Credits Satellite For A Return To Profitability

By | July 26, 2004

      Pace Micro Technology [PACE.L] hopes its recent return to profit signals an upsurge in fortune. The set-top box manufacturer had a tough financial year in 2003, reporting an overall loss of $30 million. However, it just released its results for the financial year ended May 29, showing profits of $11.1 million.

      In particular, it was the satellite pay-TV sector that played a large part in Pace’s success during the last financial year. It won key contracts with such satellite pay-TV operators as Viasat in Scandinavia, Sky Italia in Italy, Premiere in Germany and Foxtel in Australia. These were major contract awards for the company, and they should provide strong revenue streams in the future.

      Important for the company, Pace also is diversifying its revenues in terms of geography. In its recent financial results, less than 60 percent of its overall revenues came from the U.K. market in the financial year 2003-04. In the financial year 2002-03, that figure had been more than 80 percent. In terms of the potential growth opportunities for the company during the next 12 months, Neil Gaydon, worldwide sales and marketing director at Pace, told Satellite News, “For the coming financial year, we see our growth coming in Europe, Asia and the United States.”

      The two major growth opportunities for the company will be in the areas of High Definition (HD) and personal video recorders (PVRs). While HD is beginning to become more entrenched in the United States, it still has a long way to go in Europe. According to Gaydon, pay-TV operators already are looking to an HD future.

      “I think if cable operators are going to compete in Europe, they will also have to offer HD,” he told us. “Many satellite pay-TV operators are talking about HD, but I can’t say there are any box orders being placed yet. But there is certainly interest, particularly in countries such as Germany, where HD might provide operators an opportunity they don’t have now to offer additional premium-service packages.”

      The operator already is shipping HD PVRs in the United States, and it hopes soon to be in a position to ship these boxes in Europe as well. Gaydon said of the type of box he hopes will make an impact in Europe, “I think in Europe HD will be streamed in MPEG4, as it takes up less bandwidth than MPEG2. However, cost-effective STBs will be dependent on the silicon providers coming out with silicon at the right price. That said, I expect Pace to have a MPEG2 HD satellite box by the end of the year.”

      However, while moves toward HD are on the horizon, Gaydon warned there are some potential obstacles to overcome. A number of consumers in Europe recently acquired high-end TV sets, and Gaydon believes such decisions could prove to be premature.

      “The industry may have to deal with fallout from some consumers who could be upset that they bought themselves an expensive wide-screen TV and will then have to buy a HDTV,” he said. “This might slow down HD takeup, but like everything in this business, if the content is there and cost-effective TVs are available, and we have a STB at the right price, it will happen.”

      He continued, “The beauty is that the United States mainly had 4:3 NTSC sets, so to then show them HD wide-screen was such a huge step forward, it generated a lot more interest quicker.”

      Potential BSkyB Contract

      One potentially interesting contract Pace could gain could involve BSkyB. The U.K. pay-TV operator plans to launch a HD service in 2006, and its efforts here could stimulate other pay-TV operators in Europe to follow that road.

      With a number of U.S. channel providers doing programming in HD, it will make the transition from SD (Standard Definition) to HD far easier for Europe’s pay-TV operators.

      “I think Europe will be slightly different in that there will be a lot more content about by the time the technology is available, a lot of the major TV shows in the US are now being shot in HD,” Gaydon added.

      The United States also has the potential to be a major growth market for Pace in the coming years. With the emergence of HD here as well as a thriving PVR market, the company expects to have a big impact.

      “We need to ensure that the United States stays on track and ships the new products we are working on, particularly HD PVR,” Gaydon said. “We believe the competitive environment being created between cable and satellite will create more demand for HD boxes – the competition is being driven by News Corp through their acquisition of DirecTV, and the investment being made in HD by the cable companies, in particular Comcast and Time Warner.”

      Pace also is looking to develop its multiroom strategy. This enables viewers to access content from the STB in another room in the house. This could be the first step to developing home servers, although this may still be some time away.

      — Mark Holmes

      (Amanda Duffield, Pace Micro Technology, e-mail

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