PIC.L (Pace) delivered its interim results for 6 m/e 30-Jun-2012. Price is up 13.1% at the time of writing. Since the board reshuffle, investors seem to have much more confidence in CEO Mike Pulli, and chairman Allan Leighton, former chief executive at Asda. It would be nice to see PIC develop into a Great British tech company. I think there’s little innovation in this country compared to a place like America. Pace operates in a highly competitive fast-moving area, so there’s still quite a lot of risk in Pace whatever happens.
For me (but I don’t think the market – I didn’t see it mentioned by any ADVN poster as being significant, for example), one of the most reassuring signs is that net debt is down to $243.3m from $321.7m on 31-Dec-2011.
It looks like the market reaction to PIC is one where everyone is breathing a sigh of relief that last year’s multiple missteps are being put behind it. Current management seem much more cognizant of all things like supplier issues. The previous management didn’t seem all that hot on operational aspects of the business. Revenues were $1006.5m, down from $1187.1m in 2011H1. PTB is also down. Dividends have been increased by 15%.
It’s interesting that management chose to highlight improved inventory controls.
The outlook for the remainder of the year has improved; better operating performance and increased volumes plus new business wins underpin the Board’s confidence that operating margin will be greater than 7% from flat revenue against 2011 (both before impact of HDD supply disruption).
The increased interim dividend reflects the Board’s confidence in the outlook and the future prospects for Pace.
Management attributes reduction in revenue due to lost revenue from HDD supply disruption, reduction in low-end product volume in Latam (Latin America), and reduced shipment ahead of next generation product launches in USA. Revenue is expected to increase significantly in 2012H2.
The big buzz in tech at the moment (more a feature in America than in the less developed countries, of course), is 5g, and all that jazz. 5g is the next-gen in wifi. It’s like old wifi, but with much greater bandwidth. The point of it is that it allows bandwidth-hungry services like streaming video to be received by more devices around the house. Reception is also likely to be better, and will eliminate much of the hotspots and coldspots that people may find throughout their home. PIC refers to these devices as media servers, which combines the functionality of STB (Set-Top Boxes) and the Gateway. Media servers will become the main hub of the home, and PIC claims to be uniquely and strongly positioned in this regard. I should emphasise that this is very much for developed markets. Places like India will likely be more interested in PIC’s more lower-tech STB offerings.
I think one worry that has been targeted at STB makers like PIC is that STBs are a dead tech. There are two counter-arguments to this: firstly, there are some fast-growing markets in less developed countries. Secondly, STBs aren’t dying, they’re evolving – the media servers, for example. With regards to the latter respect, it now appears that the 2wire acquisition was a very important strategic acquisition for PIC. I think that there was skepticism by the market as to the importance of the deal, and may have perhaps been regarded as one of those regular cock-up acquisitions that companies make from time-to-time. That perception now appears wrong.
The acquisition of 2Wire provided a strong and profitable revenue stream in both Gateways, and Software and Services. Revenues from Gateways in North America increased 29.6% to $236.2m in H1 2012 from H1 2011. In addition, the market leading home networking technology and products from 2Wire combined with the existing Pace STB expertise and portfolio, positioned Pace at the leading edge of the evolution to Media Servers. Pace has developed Media Server products for Comcast and DirecTV that have recently been launched.
My own 2 cents: PIC will never be a “moat” business. I think that will tend to belong to its customers.