UK based set top specialist Pace Micro Technology used its results announcement this week as a platform to declare that it has doubled its turnover and returned to profit and largely turned the corner in the US
Pace has always struggled to build itself a broad base of both products and geographies so that it is not too dependent upon UK pay TV operations such as BSkyB, and last year it stumbled over US contracts that were stalled at cable TV operators.
The results for the second half of 2006 (first half of its financial year) showed Pace shipments up 60% to 1.8 million set-top boxes compared to 1.1 million last year, with the US contributing over 50% of revenue.
Revenue reached £180 million ($355 million) compared to £79 million ($155 million) for the same period last year. Profit before tax and restructuring costs was just £1.4 million ($2.7 million), under 0.5% of revenues, but this compares with a loss last time of £8.9 million ($17.5 million)
Pace Chairman, Mike McTighe, commented ‘During 2006, the Pace management team focused on the need for change within the organization. Our actions are beginning to pay off and we are now well positioned to capitalize on our strengths.’
Good progress is being made in the US, which contributed over 50% of the Group’s revenues in the period, confirming Pace’s long-term strategy to target the world’s largest digital TV market. Pace continues to deliver its high definition MPEG-4 personal video recorder (PVR) to DirecTV and a growing number of US cable operators have purchased Pace’s HD PVR.
Following approval in September 2006, shipments to Comcast of Pace’s standard definition (SD) PVR for US cable networks finally began. In May 2005 Comcast ordered between $375 million and $550 million of Pace set tops over the next three years depending on which set tops Comcast called down, but the contract hit production snags last year.
Later it also landed deals at DirecTV, Sky, Premiere in Germany and at other cable operators in the US and after years trying to make it in the US, it looked set to break through.
In October Pace said that shipments to Comcast had finally begun in volume and that some 17 months after the order it was in the final stages of field trials on the standard definition DVR for Comcast.
The deal was a massive achievement in the first place, with Pace being the only company that has ever managed to receive certification for working with the Motorola conditional access system, something that is said to have taken 3 years of hard work and accumulated US losses.
The Motorola conditional access system is fairly complex and can cater for regional programming blackout, pay per view, impulse pay per view, variable length preview periods. But mostly it is just proprietary, with pressure from the cable operators the only way it has been opened up.
The Pace solution so intrigued Comcast, using an emulation layer of software called Engine Ware, which means that the same (low priced) set top could be used to handle Motorola conditional access services and its specialized Powervision EPG, as well as the Scientific Atlanta conditional access and its TV-Guide based EPG. The same software layer will also allow Pace to layer an OCAP client on the same device with no hardware changes.
Pace had the job of driving three years of deliveries into an 18 month delivery window and still has no high definition product accepted at Comcast, although it has them in production for other clients.
The company says that now improving profitability is the key priority and says improved margins are now being achieved in some new products, but it will take 12 to 18 months to work through.
Pace says that demand is strong in all markets and analog devices are being replaced in many markets. Average selling prices have risen from £72 ($142) to £100 ($197), reflecting the growing proportion of higher specification products, such as high definition PVRs, being shipped.
The company had a number of non-repeating costs such as restructuring, accounting changes and R&D write downs and headcount fell from 660 to 592 during the period.
Pace says that it has continued to work with BSkyB, recently winning new business for Digibox and the Sky+ PVR for shipment later this calendar year. In Italy, shipments of a standard definition PVR commenced to Sky Italia, alongside ongoing shipments of both high and standard definition set-top boxes.
A new contract was also signed with Digiturk, a major Turkish operator, for a high definition PVR and basic set-top box.
The Digiturk product now in development uses a new combination of Irdeto conditional access and OpenTV middleware. These products are expected to create a series of new business opportunities for the Group, as a number of other payTV operators will require similar solutions.
In Germany Pace’s performance has been less successful following Premiere’s loss of Bundesliga football rights, which has had a direct impact on the demand. Pace’s says that in the US its customer base has expanded to over 20 cable operators.
Pace has also made inroads into the MultiDweller units marketplace where homes in large apartment blocks require a more cost effective system. In June this year it launched a deal with Fujitsu to work together to produce a set top that communicates using WiMAX broadband wireless services as another way of connecting DVB architectures, including DVB-C and DVB-S for cable and satellite, with a return path from emerging WiMAX services.