Publish date:
Updated on

As part of the fallout from its soured relationship with
General Instrument Corp., Pace Micro Technology has closed its Denver office and
consolidated its North American operations into a Miami office serving Latin America.

Pace executives in the United States and the United Kingdom
insisted, though, that the British set-top-box manufacturer still hopes to sign up one or
more U.S. cable-system operators interested in a second source for GI-compatible digital
set-top boxes.

Mike Tucker, regional director in charge of the Denver
office, has left the company to work for British Sky Broadcasting, as logistics director
for BSkyB's new digital service. Most other employees were let go as part of the

North American marketing, sales and support will be handled
out of the Miami office, with director of Latin American operations Clyde Roberts taking
over responsibility for North America. Roberts conceded that the North American market has
failed to deliver on the company's expectations, but he insisted that Pace has not
abandoned its attempts to sign up cable operators in the United States and Canada.

In late January 1997, Pace agreed to license GI's core
DigiCipher II encryption technology -- including an upfront technology-transfer payment,
believed to be approximately $1 million -- as part of an agreement that eventually
included assurances that GI would support Pace as a second source for its digital
set-top-box customers.

But the alliance never resulted in any sales for Pace, and
company executives privately grew disenchanted with the relationship.

"We'd go in to bid, and [GI] kept undercutting us
on the cost of the box," one Pace insider complained. When asked if the company felt
that it was misled on the relationship, he answered, "Yes."

Roberts said problems with GI contributed
"greatly" to Pace's decision to close the Denver office. But, he conceded,
the move will also save the company money, as it struggles to recover from a disappointing

"We saw it as pointless to have two offices in one
country," he said.

Pace last week reported a pretax loss of £12.1 million
($20.16 million), including provisions and restructuring costs of £12.3 million ($20.5
million), for its 1998 fiscal year, which ended May 30. For the year, revenues were down
more than 20 percent, to £184 million ($306.6 million) from £219.6 million ($365.9
million) in 1997.

Pace said sales of analog set-top boxes, primarily in the
United Kingdom and Continental Europe, fell 38 percent. That decline was not offset by the
relatively smaller volume of the company's digital set-top business, which
nonetheless increased 41 percent in unit sales.

Pace is apparently pinning its hopes for a recovery largely
on a new generation of digital set-top boxes that will be built both for the U.S. cable
market and for DVB-compliant (the European Digital Video Broadcast standard) systems in
Latin America and other world markets. In the United States, Pace plans to market a
GI-compatible version -- believed to fall somewhere between GI's DCT-2000 and
DCT-5000 boxes in capabilities -- to cable operators looking for a second source besides

The box should be ready to ship by the second quarter of
1999, Roberts said, adding that pricing should be "substantially" below that for
the product that the company has been marketing. That box, sources said, has been offered
for somewhat less than $300.

While not commenting on the current digital box, Roberts
said that by the end of 1999, Pace should be "very close" to a $200 price point
for at least some versions of the new box. And that, he said, should get Pace in the door
with at least some U.S. operators.

"We want to get our money back," he added,
speaking of the licensing fees paid to GI, as well as the development costs for
Pace's first GI-based digital set-top box.

"They still have some contacts in the U.S.,"
noted one cable-industry executive familiar with Pace's negotiations with cable
operators. "I don't think that the situation with TCI [Tele-Communications Inc.,
which was expected to be Pace's first significant U.S. customer] will be repeated
with other operators."

In contrast to the Denver office, Pace's Miami-based
operation has been the focal point of continuing sales to News Corp.-led direct-to-home
venture Sky Latin America. Roberts said the company has shipped roughly 360,000 DTH
receivers to date, worth more than $100 million in sales.