Shake up in the set top box business

Philips has sold its set top box and connectivity business to Pace Micro Technology of the UK in a move that will help Pace achieve the scale that it needs to compete effectively in global markets. The company has been struggling in recent years, although it has a stream of contracts from the US.
The deal also includes the connectivity business, and Pace has been a leader in this area aiming to integrate the connectivity around the home into the set top box to help maintain margins and prevent the business moving to low cost Chinese suppliers.
Philips agreed in principle to divest the STB and CS businesses to Pace in exchange for 70 million Pace shares. The proposed transaction is subject to approvals from Pace shareholders, the relevant regulatory authorities and Philips' workers council. After completion, Philips will become a 23% shareholder in the combined business, representing a market value of around £60m.
The outcome of the transaction will result in a combination of strengths of two leading players in the industry, creating one of the largest set-top-box players in the world at a time when the shift from analogue to digital TV is rapidly increasing. Commenting on the sale, Philippe Alcaras, Business Unit leader Philips Home Networks said: "We feel that the rapidly changing dynamics of the markets in which the STB and CS businesses operate will inevitably culminate in further industry consolidation. By striking a deal with Pace now, we gain the first-mover advantage and it shows Philips' determination to secure a leading role for our businesses, and make them even more relevant to our customers and technology partners."
The two businesses had estimated sales of EUR 425 million in 2007 and employed 335 people, predominantly based in France, who would transfer to Pace as part of the transaction. The remainder of Home Networks, Home Communications, which includes Internet Telephony and Home Telephony (DECT), will become part of the Peripherals & Accessories unit within Philips' Consumer Lifestyle sector.