Samsung moves Pace out of the picture at NTL

Pace Micro, the UK's leading manufacturer of digital television set-top boxes, is in danger of losing one of its biggest customers, a move that would plunge the company deeper into financial turmoil.

Cable company NTL, which accounts for about 30 per cent of Pace's sales, will today announce it has signed a deal with rival manufacturer Samsung to supply it with set-top boxes. Industry insiders revealed that the Korean company could eventually replace Pace and become NTL's sole supplier.

The relationship between NTL and Pace broke down last week when Pace warned that sales for the year to 31 May would be £150m short of expectations. The news wiped more than two-thirds off Pace's stock market value in just one day. The Yorkshire-based company blamed what was its third profits warning in seven months on NTL. Pace said it was forced to scrap delivery of 300,000 set-top boxes to NTL over credit fears.

Chief executive Malcolm Miller said Pace was unable to secure credit insurance for the shipment. NTL, run by Barclay Knapp, dismissed the claim as "confusing and inaccurate". But Mr Miller also said Pace had halted the manufacture of another order for NTL last week to prevent stock building up.

But he told the City he wanted to continue doing business with the cable company, trying to reassure investors by saying: "We are not losing any market share because at the moment NTL is not getting any set-top boxes from anybody." Today's news shatters that claim and will raise new questions over Pace's forthcoming results. Under the terms of its contract with NTL, Samsung has agreed to manufacture a fixed number of set-top boxes, in a deal thought to be worth £30m. One well-placed source said that if the initial contract is successful then Samsung could replace Pace.

KS Lee, vice-president of Samsung's networking division, said: "We view this initial contract as the start of a very important long-term relationship between Samsung and NTL."

The potential loss to Pace would be considerable. NTL has 1,230,000 digital customers. In addition, NTL has a further million analogue users it is persuading to switch to digital.

It is understood that at the end of last year NTL took delivery of 200,000 set-top boxes from Pace. With NTL taking on about 190,000 digital customers a quarter, its stocks will soon be depleted. The City is also worried that Pace may have problems withother customers, including the indebted Telewest and the faltering Carlton-Granada joint venture, ITV Digital.

Speculation is likely to centre on Telewest, which has worked on procurement and marketing initiatives with NTL. But Telewest is said to have no plans to switch its set-top box supplier. Pace admitted it is to ship 200,000 boxes to the US, down from its 500,000 estimate.