Last updated: March 8, 2011 11:14 pm

Pace drops as big US order is deferred

Shares in Pace lost a fifth of their value as the set-top box manufacturer admitted that a big US customer had decided to defer a large order until 2012, which would limit revenue growth this year.

The company, which overtook last year Motorola and France’s Technicolor to become the world’s biggest maker of television set-top boxes by shipments, said the customer had decided to wait for next generation technology, meaning that sales would not be accounted for in 2011.

The shares fell 20 per cent to 176.4p as investors reacted badly to the contract deferral, which only emerged in an analyst conference call after Pace had released full-year results. There was no mention of the deferral in the results statement itself.

Analysts were also concerned that growth appeared now to be coming mainly from businesses acquired recently such as 2Wire. The California-based broadband router maker was one of three companies Pace bought last year.

Ian Robertson, an analyst at Seymour Pierce, said that while Pace pointed to 2011 revenue growth on a par with last year at about 17 per cent, it was apparent that sales in the core set-top box business would be flat.

Neil Gaydon, who took over as chief executive in 2006, said conditions across all the company’s markets were positive and that Pace expected to benefit from the push into hybrid internet-enabled pay-TV where it serves customers such as Comcast and AT&T.

Pace, which was fined by the Financial Services Authority in 2005 in part for failing to reveal in its results that a trade credit insurance agreement had been withdrawn, said it was disappointed by the market reaction, adding that it had delivered “clear revenue guidance for 2011” and a strong set of results.

Analysts said the share-price reaction was overdone but there were lingering fears that Pace’s customers in the pay-TV market would in time be squeezed as, increasingly, consumers downloaded TV programmes and videos over the internet from companies such as Google and Netflix.

Pre-tax profits were up 1.7 per cent at £71.1m on sales that rose 17.7 per cent to £1.3bn. Earnings per share fell from 17.2p to 16.1p.

Pace proposed a final dividend of 1.45p, resulting in a full-year pay-out up 45 per cent at 2.175p.

Pace – which works with more than 160 operators to create digital, high definition, 3D and hybrid set-top boxes – shipped 22.2m devices over the course of the year, up 29 per cent.

Additional reporting Masa Serdarevic

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