STRONG sales of high-tech media servers in North America helped TV technology group Pace beat City expectations with a record fourth quarter.
“The Saltaire-based set-top box maker said it saw high demand for media servers in the second half of 2012, a trend it expects to continue into this year.
Media servers create a technology ‘eco-system’ in the modern home, linking payTV and broadband content with any screen in the home, plus connecting a multitude of devices, from tablets to gaming consoles.
Analysts hailed Pace’s rapid recovery from missing out buying on Motorola Home in December and hard disk drive shortages earlier in the year.
Pace is “proving the doubters wrong, again”, said analysts at Canaccord Genuity.
Pace also announced a couple of key contract wins which will help its strategy of widening out into software, services and integrated solutions.
Australian payTV giant Foxtel picked Pace to provide an “integrated whole home solution”. This includes media server hardware, software and systems integration services.
Pace said BSkyB has also deployed its component management system in the UK – a software suite which helps link technology in the home.
Chief executive Mike Pulli said: “Pace has performed impressively in 2012 with a particularly strong second half to the year. We have made good headway on executing our strategy and Pace is becoming a more profitable, cash-generative company.
“We have momentum and a sustainable platform to build from, and we expect to make further progress in 2013 and beyond.”
Full-year revenues are expected to be around $2.4bn (£1.5bn), four per cent ahead of last year and ahead of previous guidance for flat sales.
“Full-year results are anticipated to be ahead of the board’s previous guidance,” said the company.
Technology firms are trying to adjust to the rapidly-changing home entertainment market, which increasingly involves content streamed over broadband and a wide range of connected devices, from smartphones to tablet PCs.
With Mr Pulli as CEO and former Asda CEO Allan Leighton a chairman, Pace has embarked on a turnaround strategy which has seen its shares surge almost 150 per cent over the past year.
They closed up 8p, or 4.15 per cent, at 200.8p yesterday.
Stripping out the effect of hard disk drive (HDD) disruptions –when flooding in Thailand hit suppliers more than a year ago – operating margins should be 7.3 per cent for the year.
Underlying earnings will be 11 per cent higher at about $157m.
Cash generation in its second half was strong, Pace added, with free cash flow of at least $175m for the year, compared with $8.2m in 2011.
Net debt has been slashed by 47 per cent and Pace said it closed the year at about $170m, from $321.7m a year earlier.
Pace said its plan to “transform core economics” has delivered “sustainable savings”, and an overhaul of its supply chain is well underway.
The company saw increased demand for DIRECTV’s Genie media server and Comcast’s XG1 media server in the second half.
“We expect this technology trend to continue into 2013,” it said.
Pace recently approved production of DIRECTV’s next generation HR44 Genie device, plus a C41 mini Genie.
Espirito Santo analyst Vijay Anand said: “The out-performance was driven by strong fourth quarter demand for the next generation media server product from DIRECTV and Comcast, two of Pace’s largest customers.
“Pace expects the strong demand for media servers to continue in 2013 and the company has good revenue visibility for the first half.”
Last month Mr Leighton insisted Pace was right not to overpay for Google’s Motorola Home set-top box business, after it was trumped by US firm Arris’s $2.35bn (£1.45bn) bid.
The Motorola Home business designs, makes, sells, installs and services set-top boxes for digital and internet protocol video, satellite and terrestrial TV networks.
Mr Anand said while Pace’s focus on “maintaining financial discipline” is positive, the Arris-Motorola Home combination is a “more formidable competitor”.