Satellite Deals Fuel Pace Recovery

Pace Micro Technology [London: PIC: L] has signed a trio of deals with satellite pay-TV operators that could signal a reversal of fortunes for the UK set-top box (STB) manufacturer. Last year, Pace issued a series of profit warnings, which showed just how tough the going was for the company. The worst now appears to be over.

Deals with Italy’s Sky Italia, Viasat Broadcasting in the Nordic region, and Foxtel in Australia means the company is now making headlines for all the right reasons. Graham North, Pace’s regional director for UK and Ireland, told Interspace that he believes the worst is over. “We did go through some tough times as we had to put out some statements. They were not positive statements. But, we really do believe that we have gone through the worst of all that … It doesn’t take a genius to see that these deals herald a more positive outlook for us as a business. From an internal viewpoint, we definitely think we are on an upward curve now. I think these deals are a promising sign in terms of a recovery in the market.”

Sky Italia Deal

The most recent deal with Sky Italia was announced on May 27. Italy is seen as one of the most important pay-TV markets in Europe, with the potential for high growth rates. North said: “We have always viewed the Italian market as being a key strategic market. In the same way, the UK has been a very aggressive market for pay-TV, Italy could be a very similar market place. I just think it needs the right level of approach and push from the right operator to open up and expand. I think Sky Italia is very well-placed to take advantage of that.”

The deals are also critical because they involve satellite pay-TV operators spending money. North admitted that Pace had previously thought its bigger opportunity in Europe would come from cable TV. “My view from a European perspective is that a year ago, cable [looked like] the big opportunity for Europe. I have to say the way things are looking at the moment, it is quite likely bigger growth will take place in the satellite sector over the next one to two years. Satellite is probably the bigger opportunity out of the two.”

According to North, there have been changes in the business models that European pay-TV operators are deploying. They are now looking to buy entry level STBs and encourage STB developers to retail advanced models. This enables operators to reduce their upfront investments and operators to target both the entry-level and advanced markets, as well as have different business models to attract subscribers.

Long-Term Prospects

So, what are Pace’s longer term prospects? Certainly, these deals were vital to restore confidence. The company has a new CEO, John Dyson, who was appointed just before the slew of deals were announced.

The numerous negative trading statements last year drained investor confidence. But, it still may be a while before Pace recovers from the events of the last 12 to 18 months. In particular, it was badly hit when one of its major customers, UK cable operator NTL [Nasdaq: NTLI], went into Chapter 11 bankruptcy protection.

Gilad Alper, a media equity analyst at Commerzbank, told Interspace: “[Pace] is a turnaround story in a sense that the problems that dogged them are not necessarily solved, but are much better. They have done most of what they needed to do in terms of cutting costs. NTL and Telewest [London: TWT] are on the way to solving their own problems.”

While the deals are good news for Pace, Alper believes market conditions across Europe will still be difficult, particularly in the cable arena. “Europe is still extremely slow. The cable market in the U.S. is also on the verge of saturation or at a turning point. Insofar as what they can control and their biggest historical problems, which is NTL, Pace is OK. But, the market is going to keep them depressed for a long, long time. The contracts and footprint they have in Europe, the UK and the US means they are here to stay, even if they never become a big company again, at least they will survive.”

–Mark Holmes

(Contacts: Amanda Duffield, Pace Micro Technology, e:mail: Amanda. [email protected] Gilad Alper, Commerzbank: e:mail: [email protected])