October 20, 2011 8:52 am

Thailand floods prompt fresh Pace warning

Pace has blamed severe flooding in Thailand for its third profit warning of the year, dragging shares in the set-top box manufacturer down 12 per cent.

The group, based in Saltaire in Yorkshire, said the floods had forced the closure of a factory that supplied 3½-inch hard disk drives for Pace.

Western Digital, the world’s second-largest maker of computer hard drives by sales, earlier this week suspended its operations in Thailand after rising water penetrated the flood defences of the Bang Pa-in industrial park, inundating its factory there and submerging some equipment. Its other Thailand factory at the Navanakorn industrial park was also threatened by the deluge.

Pace said the impact of the floods would knock $9.5m from 2011 operating profit “before taking account of possible mitigating actions”.

Operating profit for the full-year to December 31 was “now likely to fall below previous guidance of $150m-$170m”, Pace said on Thursday.

“Because Western Digital is the major supplier of hard disk drives to Pace, this will negatively impact expected shipments of products with hard disk drives from this supplier during the remainder of this year,” Pace said.

The company’s other supplier of 3½-inch hard drives, Seagate, has also been affected by the flooding, but not to the same extent as Western Digital.

“We have two choices – to use a Western Digital drive or a Seagate drive,” said Neil Gaydon, Pace chief executive.

“We are working with WD to see what we can do to get supply from there. Where customers are open to using an alternative drive, we will have to work with them to approve that drive within the design of that product.”

Analysts at Altium Securities said: “While the interims were in line, this profit warning makes it a three in a row for Pace. Confidence in management remains fragile. We lower our target price from 105p to 87p and maintain our ‘hold’ recommendation.”

In May, the FTSE 250 company blamed lower margins in Europe and supply-chain problems following the disaster in Japan for a $50m cut to full-year operating profit expectations. Shares in Pace, which last year overtook Motorola and France’s Technicolor to become the world’s biggest maker of television set-top boxes by shipments, fell 40 per cent on the day.

That followed a single-day fall of 20 per cent in March after analysts discovered that an order from a large US customer had been delayed until 2012 – a fact that the company neglected to report in its annual results statement released on the same day.

Shares in Pace, which have more than halved in value over the past 12 months, fell 10.95p to 81.05p in early London trading on Thursday.

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