Pace Micro Technology, the UK television set-top box maker, has warned of bigger-than-expected losses due to "difficult" trading conditions in the digital TV market.

The firm said it is planning further cost cuts, having just completed a programme to shave costs by �15m a year.

Pace Micro has been dogged by problems in the UK digital TV market, but its latest problems are caused by poor foreign sales.

The firm said its performance in the UK remained solid, but it was not yet meeting sales targets in mainland Europe and the US, despite having recently started shipments to a second major US customer.

More cost cuts

Pace Micro's shares dived 27% as the London stock market opened but then recovered some ground, to be 11% lower at 17 pence by 0915 GMT.

The firm said losses in the six months to 30 November would be greater than anticipated.

It gave no details of the additional planned cost cuts.

Pace's year to June 30 2002

Profits down 70% to �13.1m Sales down 33% to �351.8m Shares down 81% to 89p

Pace Micro's profits for the year to end-June were 70% down on the previous year, at �13.1m.

Investors responded to that news in July by selling the shares, wiping more than a quarter off the value of the stock in one day.

Pace warned then of "turbulent conditions" in the digital TV market and said the UK market may be "past its peak", with 40% market penetration, double that of the rest of Europe.

Tighter market

In the first half of this year, Pace suffered from uncertainties over the UK digital TV market, which ended in the collapse of broadcaster ITV Digital.

Customers received ITV Digital's services via set boxes such as those made by Pace Micro.

The regulator has since awarded ITV's digital terrestrial licences to the BBC, which launched its 24-channel service in the autumn using set top boxes.

But although the UK market has been stabilised, Pace is facing increasingly competitive conditions and falling prices in the UK and elsewhere.

For instance, Pace Micro has agreed to supply Sky+ video recorders at below cost until April 2003.

Pace Micro agreed to the deal - which triggered a profits warning in July - to gain of a share of new subscriptions to broadcaster BSkyB's Sky+ service, which allows viewers to pause and rewind live TV shows.

Analysts say the US market is proving particularly competitive and uncertain for Pace.