Published: 09.29 Europe/London, May 10, 2011

Pace has issued a profit warning after the set-top box to gateway supplier was hit by a combination of factors, including the Japanese Tsunami. In mid-morning trading the shareprice was down 40% at 89.90p.

Volume shipments and revenues have continued to meet expectations, but the company said operating profit was likely to be below target. First quarter revenues increased by 24%, but operating profit is expected to be lower than anticipated.

“It is clear from today’s statement that despite revenues and product shipments being on track, we have made a disappointing start to the financial year with our profitability,” said Pace CEO Neil Gaydon. “Although we will now not be able to make up this first half under-performance in the second half we continue to drive long-term growth and profitability.”

Costs have increased as a result of Pace having built up an inventory of purchased components ahead of time, so as to deliver promptly on customer orders. Even so the Japanese Tsunami has severely hampered the supply chain environment.

Profitability within Pace Europe was also below expectations, although the unit achieved both revenue and volume targets. Its key contracts have come from outside of the continent, signing deals with Tata Sky in India and Net Servicos in Brazil.

The Pace Networks division has also been closed as a standalone unit, the result of a lack of demand for products. Its existing customers, including Canal Digital, will now be managed under Pace Europe.

Pace said it expected operating margins for the first half of the year to be at about 5.5%, rising to close to its medium term 8% operating target on the second half. For the full year the Board expects operating profit to be below management expectations and in the range of $150 – 170 million (€104.4 – 118.3 million).

It is the second blow to Pace in successive quarters; In March it emerged that a US provider had delayed an order by 12 months into 2012, effectively skipping a generation of technology.

Pace is not alone in facing a tricky start to 2011. Last week ADB Global said the company required profound changes in order to mitigate the effects of a delay in economic recovery.