Revised BSkyB deal sends Pace shares into freefall

Pace Micro Technology, the set-top box provider, watched shares value dive on the stock market yesterday by almost half after the company announced a revised profits target for 2003.
Pace shares dropped 47% to 38.5p after the group said that they had to renegotiate a contract with BSkyB leading to the company providing its Sky+ Personal Video Recorder to the customer at less than the production cost. Instead, the company will receive a portion of the Sky subscription fee. Pace said that the new set of circumstances would be in force until March 2003.
The revision of the BSkyB contract had an immediate effect on results, as Pace revealed that pretax profits were £1.7 million down on the year to June 1.
However, the revised contract will have a more serious long-term effect on Pace. The company now expects a drop in pretax profits up to June 2003, with targets forecast at £8 million down to £10.7 million.
Pace Micro Technology have had to endure a series of lowered profits forecasts over the past three months. Some analysts are now rating the company's shares, now at a four-year low, at 'underperform'.
It appears that Pace were strong-armed into the deal as, in an interview, Pace's Marketing Director Andrew Wallace revealed: "BSkyB is a very tough negotiator, no doubt about that. Although Pace in the past had made a point of staying clear from financial support, we've been prepared to do it for a limited time because Sky is a very important customer."
However, Mr Wallace said that the move would render high sales volumes once the Sky+ price comes down and he said that BSkyB had made a further commitment over Digibox purchases in the long term.
Mr Wallace added: "If a tech stock says it is making an investment to increase profits in the longer-term people would be nervous. But this is a way to share on the upside."
In a statement, Pace said: "Sky+ will be cash and profit positive to Pace from at latest 1 April 2003 when new shipments will be on usual trading terms."
The current contract between BSkyB and Pace for Sky+ runs until 2004.
Pace Micro Technology, www.pace.co.uk
(GMcG)