Pace stops making Freeview set-top boxes

Pace Micro Technology, the maker of television set-top boxes, is to stop making devices for Freeview, the BBC-backed digital television service, because of falling margins.

The company said its production of the Freeview boxes had fallen to a negligible amount after at least 18 suppliers had entered the market for a device that costs consumers about £60 from retailers.

Freeview offers 31 television channels and radio stations free of charge through a digital terrestrial service received via normal rooftop aerials. The service is also backed by BSkyB and Crown Castle Communications. The falling price of set-top boxes meant gross profit margins fell across the group, as average selling prices continued on a downward trend, according to Pace's half-year results announced yesterday.

Pace said that gross profit margins overall had fallen from 19.1 per cent in the first half of 2003 to 16.8 per cent in the six months to 4 December. This was despite the number of boxes being shipped rising from 1 million to 2.1 million, thanks to demand from pay television operators, contributing to a 36 per cent rise in turnover to £150.5m

"As a result of the lower pricing and a greater proportion of lower-cost, lower-margin, set-top boxes being shipped, gross margin declined to 16.8 per cent," the company said. Pace was still able to post pre-tax profits of £3.1m, compared with £800,000 in 2003, and held out the prospect of paying a dividend.

Pace generates 61 per cent of its turnover outside the UK. Sir Michael Bett, the chairman, said: "We are confident that the group's underlying performance and recovery trend will continue, although, as indicated in December, this recovery may take longer than was initially anticipated."

Pace's shares ended up 9.4 per cent at 42p.