Supply-chain woes caused by the earthquake in Japan and uncertainty over a large order from a U.S. customer prompted set-top box maker Pace to revise its profit outlook for 2011 downwards, setting off a selling spree of its stock in the U.K. and overshadowing what otherwise would have been a modest rise in operating profits.
The U.K. company, the largest STB maker in the world, said it was helped by three acquisitions during 2010, including its $475 million buy of 2Wire. It forecasts revenue growth of some 17 percent for 2011, but analysts expected it to be in the range of 26 percent.
Those same analysts said Pace's use of the natural disaster in Japan as reason for the reduced profits was only half the story, saying that the company had purchased a stockpile of components for STBs on the basis of a major sale in the U.S. that was delayed until at least 2012.
"It appears that Pace has paid up to get hold of components only to find its customers did not require the products until later and that these later sales were on a different quarterly pricing basis and so the extra costs could not be passed on," said one analyst
Added Altium Securities: "The statement offers a list of reasons that contributed to the lowered margin expansion, none of which seems to be credible in our view. This statement also stands in stark contrast to the first quarter performance of its two closest peers - Motorola Mobility and Technicolor. In the first quarter, Motorola's set-top box revenues were up 11 percent and Technicolor reported flat revenue growth (unit growth of 21 percent year on year). Both these vendors remained bullish about the prospects of the market and did not highlight any pressure on margins. In addition, the closure of Pace Networks is a surprise particularly as this was a ‘key area' of opportunity in 2009."
Chief executive Neil Gaydon said: "It is clear from today's statement that despite revenues and product shipments being on track, we have made a disappointing start to the financial year with our profitability."
Pace saw just a 1.7 percent bump in pre-tax profits, despite revenue growth of more than 17 percent.
- see this Guardian article
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