GigaMedia Ltd (GIGM) 2006 Q1 法說會逐字稿

Ladies and gentlemen, thanks for standing by. Welcome to the Gigamedia Limited conference call to discuss the first quarter 2006 financial results.

[OPERATOR INSTRUCTIONS]

As a reminder, this conference is being recorded today, the 11 of May 2006. I would now like to turn the presentation over to your host, Mr. Brad Miller. Please go ahead, Mr. Miller

Thank you. This is Brad Miller, Investor Relations Director of Gigamedia. Welcome to our First Quarter 2006 Results Conference Call for Gigamedia.

First, I want to apologize for the delay in distributing our press release today. We had a few technical difficulties. Here again to speak with you and answer your questions today are Arthur Wang, our CEO; and Thomas Hui, our CFO.

Before I turn it over to today's speakers, I would like to remind you that a number of forward-looking statements will be made during this conference call. Forward-looking statements are any statements that are not historical facts. These forward-looking statements are based on the current expectations of GigaMedia and there can be no assurance that such expectations will prove to be correct.

Because forward-looking statements involve risks and uncertainties, GigaMedia's actual results could differ materially from these statements. Information about factors that could cause and in some cases, have caused such differences can be found in GigaMedia's annual report on Form 20-F filed with the U.S. Securities and Exchange Commission in June 2005.

This presentation is being made on May 11, 2006. The content of this presentation contains time-sensitive information that is accurate only as of the time hereof. If any portion of this presentation is re-broadcast, re-transmitted or re-distributed at a later date, GigaMedia will not be revealing our updating the material that is contained therein.

The agenda for today's call includes first, a review by Arthur Wang of our 2006 Q1 business activities and financial performance followed by a strategic overview and comments on our outlook. Thomas Hui will then provide details on our financial results during the first quarter period. After the speaker presentations, we will go into a question-and-answer session. With that, I'd like to turn the call over to Arthur, our CEO.

Thanks Brad, and thank you all for joining us today. We are very pleased to report today our first quarter 2006 financial results, the best ever for GigaMedia. First quarter revenue from continuing operations was up 82% year-over-year to USD$18.3 million. Net profit climbed 210% to a record $3.2 million and consolidated EBITDA grew 131% to $4.9 million, also an all-time high. Today, I'd like to highlight just a few points about the first quarter before turning to a discussion of our strategic developments.

First, our strong Q1 financial performance was driven by strong growth and strong execution of our Everest Poker and traditional gaming software business. In Q1, we made excellent progress in our strategic concentration on the giant, non-English languish marketplace offering our Everest Poker and Everest Casino software in end-to-end, native language solutions in 11 languages. Revenue from the Everest Poker software business grew over 60% Q-on-Q from the fourth quarter of 2005. Active Real-money customers jumped 53% from the fourth quarter, altogether driving a 30% sequential Q-on-Q increase in net income.

Everest Poker user and revenue growth continues to be driven by marketing and grand-rolling initiatives. Q1 saw the launch of the Everest Poker European Championship, a series of country-by-country land and online poker tournaments in Europe. Response has been great with every tournament thus far a complete sell-out. In addition, Everest hosted as exclusive sponsor, the finale of the French Poker Tour at the [Aerodrome] in Paris and continues to sponsor satellite tournaments of the European Poker Tour and the World Poker Tour. To reward customer loyalty and increase lifetime player values, a new customer loyalty reward program was released in Q1.

On balance, this was a very strong growth quarter for our Everest Poker and gaming software business reflecting strong execution in Europe. I want to emphasize that we are seeing the early returns from our investment in Everest Poker and look forward to continued strong growth.

Second, our newly acquired FunTown MahJong in Asian casual game business contributed strongly to our first quarter performance. In the first quarter, the post-acquisition period, generally considered the most sensitive in an M&A deal we are happy to report that FunTown performed ahead of budget, exceeding both internal revenue and net income targets delivering net income of USD$1.2 million in the first on revenues of $4.3 million.

During the Q1, FunTown released new games and a new 3-D virtual community called FunTown Village where players can chat, shop, trade items, give gifts and even get married. Most importantly, during Q1, FunTown added over 220,000 new users increasing both average and peak concurrent user numbers. We remain very excited about the prospects for the FunTown casual game portal.

I'm also happy to announce today that we have successfully completed our strategic investment into casual game operator, T2CN Holdings, operator of the largest, online sports game in China. Let me first summarize the primary terms of our investment. GigaMedia has made a USD$15 million investment that obtained preferred shares convertible into a minority stake in T2CN along with customary preferred share rights and protections and a seat on the Board of T2CN. GigaMedia and T2CN will together offer FunTown's existing games to the large T2CN user base on a revenue-sharing arrangement.

GigaMedia will become T2CN's exclusive provider for FunTown's existing games and be the preferred provider for games newly developed by GigaMedia. Our investment in T2CN was made at an attractive valuation, representing a multiple of 8.65 times preferred earnings, that is full-year 2006 earnings. Our investment will be accounted for on a cost basis.

Our partnership with and total ownership of T2CN is a major step for GigaMedia in China and is the first of several steps we are currently contemplating. Strategically, we become the exclusive provider of online games to one of the most exciting and fastest-growing companies in China with 21 million registered users, 6.9 million users active in the last 30 days and over 250,000 peak concurrent users. We plan to roll out full-time games to this largely user base during the third quarter.

I would also like to emphasize that T2CN is a leader in online, casual sports games. We see strong potential for Giga and T2CN to grow this high-value market sector, especially given the increasing popularity of sports in China and the upcoming 2008 Beijing Summer Olympics. Online sports games is an untapped area in China and we are very enthusiastic about growing in this attractive sector. Finally, we believe that the true pedigree of T2CN can be seen from their marketing partnerships with premier international brands such as Coca-Cola and the NBA. We are proud to be a partner and co-owner of this exciting company.

I am also happy to report that we are on schedule for a third quarter launch of our Real-money MahJong and Asian game business. MahJong is a traditional game of choice for over 1 billion people, a huge untapped market and a huge opportunity for GigaMedia. We intend to leverage FunTown's number one MahJong position by bringing Real-money MahJong to this market. We have received strong interest from a broad array of gaming operators and we are currently in serious discussions with the premier names in global online gaming.

With the strongest portfolio of traditional Asian games and a position of market leadership, GigaMedia is well positioned to build a dominant Asian online entertainment brand, leveraging our market-leading FunTown casual games and a now-strengthened platform that includes 21 million users of T2CN Holdings.

We believe that long-term winners will have full-range offerings of online games, running the continuum from games of fun, games of skill, games played for prizes, games played in tournaments, all the way to real-money gaming. In this manner, it is possible to monetize throughout the entire continuum and to up-sell and cross-sell players, reducing the major variable costs, customer acquisition. Our goal here will be to offer a comprehensive entertainment destination operating under a dominant, Asian, online entertainment brand.

Finally, a word about our share price, which you may have noticed has increased in Q1. Simply put, our policy as a management team is not to comment at all on our share price level or movement except to say the following. We have taken careful note of the teachings of Warren Buffett and his cautionary warning to management against decision making and managing a business to maximize short-term share-price games. For the past two years, we have built a new GigaMedia in a methodical, step-by-step manner restructuring our legacy business and transitioning to the high-growth, high-margin, online entertainment business. Our singular focus, singular priority and singular commitment is to build a dominant, long-term, market leader for which we are confident the success of our efforts will be reflected in the capital markets.

We are building a new GigaMedia with growing shareholder value as its cornerstone. We thank you for your continued support. Let me now turn the call over to Thomas Hui, our CFO.

Thanks, Arthur. Now, let us turn to look at our financial performance for the first quarter. I will begin by taking through our consolidated results and follow that with a more detailed look at each of our business units.

Starting with our consolidated income statement, GigaMedia delivered the company's best-ever results in the first quarter of 2006. Consolidated revenues grew a better than expected 82% from the same period last year or 55% quarter-over-quarter to $18.3 million. Operating income for the first quarter rose 88% sequentially to $3.3 million with our operating income margin expanding to 18% from 14.8% last year.

There were two key drivers for the significant growth of our revenue and operating income, first, strong and better than expected growth in our Poker software products and second, the addition of our high-margin, online casual game business FunTown. As a result, net income jumped 210% from the first quarter last year or 34% sequentially to a record $3.2 million, which we resulted in an earnings per common share of $0.063. To put that in perspective, in one quarter, we have now generated more than half of our full-year net profit from last year.

We also finished the quarter with a healthy balance sheet. At the end of the first quarter, we had cash, cash equivalence and current marketable securities of $42.3 million. Net operating cash flow for the period was $3.9 million. Even after adjusting for the $5 million second payment for the FunTown acquisition and a $15 million investment in T2CN in the second quarter, we still have a solid balance sheet with ample liquidity. In sum then, with our high-margin, online entertainment business CESL and FunTown driving rapid growth in our revenues, we were able to enhance overall operating margins and significantly increase bottom line.

To breakdown these consolidated results in more detail, let's now look at our business unit results, poker and traditional gaming software business, CESL. The poker and traditional gaming software business delivered exceptional performance in the first quarter. Our poker software vertical delivered dramatic growth resulting in a full-time high in revenues and profitability for CESL. For the period, CESL generated $8.8 million in revenue, a 105% growth from the first quarter last year. Operating income increased 197% from the same period in 2005 and net income reached $2.4 million representing a 115% growth year-over-year or 30% sequentially.

Operating margin decreased from the level achieved in the fourth quarter of 2005 as a result of increased marketing spending by our licensees in building out the Everest brand but still remained at a healthy 28%. Net income for the quarter benefited from the improved terms in GigaMedia revenue-sharing agreement with our licensees for the poker software products. During the period, we continued to invest in scaling up and developing new products in the poker and traditional gaming software businesses. Capital expenditures amounted to approximately $565,000, of which 46% related to software capitalization.

Let me now briefly review our two products in the entertainment software business, poker software and traditional gaming software. First poker, growth in the first quarter was impressive and we continue to be optimistic and excited about market opportunities. Revenue from our poker software products were $3.6 million, up 62% from the previous quarter. Poker now represents 41% of CESL's revenues. Approximately 29,000 active Real-money customers played Everest Poker during the first quarter, up 53% sequentially.

We continue to work closely with our licensees to capitalize on what we see as excellent growth opportunities in the non-English speaking western European countries. Our licensees have moved rapidly and effectively to be with the Everest Poker brand through sponsorship and numerous poker tours and tournaments. In addition, the simple proprietary tool is now underway, the Everest Poker European Championships, which cover seven countries and runs from March to September. All of these activities is driving impressive growth, which we expect to continue in 2006.

The traditional gaming software business also delivered a solid quarterly performance. First quarter revenues from the traditional gaming software business were $5.2 million. This represented a 23% increase from the first quarter in 2005. The increase in revenues was primarily related to the launch of new video slot machine games.

Now, the online casual game business, FunTown. This quarter's results included for the first time financial results of our online casual game business, which was acquired in January 2006. FunTown delivered solid performance in the first quarter. Revenues in the period were $4.3 million. Net income was $1.2 million and operating margin was a healthy 27.6%. I should highlight that the first quarter, operating income and net income of FunTown includes a $322,000 amortization expense related to the intangible asset acquired as a result of the acquisition of FunTown.

On a EBITDA basis, FunTown generated $1.6 million in the first quarter or 38% EBITDA margin. First quarter capital expenditure totaled approximately $333,000, of which approximately 74% related to software capitalization. While we are very pleased with this initial performance of our new online casual game growth platform to drive steady growth and expand our user base, we are focused on developing our product pipeline.

In the second quarter, FunTown will launch a number of new games including Tales Runner, a freebie adventure racing game, which we expect to further broaden FunTown's customer base. We also focus on growing FunTown's business through strategic partnership. Our strategic partnership with top Taiwan community blog site, [Wrench], joins the family members of FunTown with the over 2 million members of Wrench broadening and enriching the entertainment and community offerings for the members of both portals. As a result of our new strategic partnership with T2CN in China, we can now offer FunTown's game to T2CN's 21 million registered users. We look forward to working closely with T2CN to expand our customer reach in China.

Lastly, the broadband ISP business, let me briefly go over our broadband ISP business. This business is our last remaining legacy business. While this business does not hold a key role in our strategic growth plans, it does provide solid EBITDA contribution and requires relatively low investments since we have [path to view without page]. First quarter revenues in the broadband ISP business were $5.1 million. Net income was $519,000. EBITDA was $1.3 million and CapEx totaled approximately $331,000.

Breaking this down, in the first quarter, revenues on the corporate side of the business were $1.6 million representing 31% of total revenue in our broadband ISP business. Although we saw a 7% sequential revenue increase related to an increase in lines leased during the period, competitive pressure in this business remains strong.

On the consumer side of the business, we continued to see erosion in our subscriber base, resulting from strong market composition and our strategic decision to shift our resources away from this business. As mentioned before, we continue to actively evaluate potential strategic alternatives for this business.

Looking ahead, we emphasize that GigaMedia's focus is on our high-growth, high-margin, online entertainment businesses with large, addressable markets. With CESL and FunTown, we have positioned ourselves to benefit from attractive growth opportunities offered by their respective markets. Finally, given our strong strategic position and our growing business momentum, we are excited and bullish about our prospects for growth in 2006 and delivering increased shareholder value. Thank you.

Thanks, Thomas. Operator, we would now like to move into a question-and-answer session. So operator, please open the call up to questions at this point.

Thank you, sir. [OPERATOR INSTRUCTIONS] Sir, your first question comes from the line of Traci Mangini from ThinkEquity Partners.

Thank you. Hi guys, and congratulations on a fantastic quarter. A couple of questions, on the poker side of the business, can you tell us what your peak Real-money player base is at this time?

We have not -- Traci, this is Thomas Hui. We have not released that figure. We -- our peak players actually including Real-money and free players was about 8,000 for the quarter. But we have not at this stage, a breakdown that into Real-money versus non-Real-money for the purpose of -- for the marketplace.

Okay. Just for some perspective though, can you give us a sense of in some, let's say, your top three or four markets where you rank from like say hit-wise numbers or some other market data?

Traci, this is Arthur. First of all, thanks very much. We -- as you know, in all, end-world market share numbers are difficult and potentially unreliable, but in the first quarter, our core marketplaces, France, Germany, Sweden, we believe we are a top-five player and possibly better. But, we would be reluctant to be too certain at this time.

Okay. But would it be fair to say that as time is moving on, you're moving up that list as opposed to moving up and down?

Yes, it -- we are -- we have a number of marketing initiatives underway and some exciting plans. We -- which we hope will begin to definitely move the needle and move us up that ladder.

Okay. And then with respect to marketing, is that -- we saw a big spike in the marketing from Q4 to Q1. Was a lot of that due to CESL and these marketing initiatives? Or was some of that FunTown as well?

Traci, this is Thomas Hui. Yes, you're absolutely correct. The -- on a quarter-over-quarter basis, selling and marketing went from $3.3 million to about $5.6 million, a jump of about $2.4 million here. And actually a large part of part of this, more than half of this is actually coming from FunTown. And you can imagine FunTown's business selling and marketing pops being basically the biggest cause, an expenses item. At CESL, as we mentioned in our prepared remarks, because of the initiative taken on by the licensees to actively promote the brand, the selling and marketing expense also increased.

Okay.

But the bulk of the increase coming from FunTown.

Okay. And I apologize if I missed this because I did hear you touch on it, noting on the poker revenue share, is that a number that you disclosed? Or are getting nearer to disclosing?

Yes.

You, I mean?

Yes we have, as we indicated to and the marketplace before, we only launched the product last year. We didn't think that the numbers was a steady enough of number. We've been working with our licensees, and now we've adjusted to actually our favor. Now, the revenue-sharing number percentage is 16%, 1 6.

Okay. All right. And then, I know that you didn't disclose this number so maybe you won't answer it now, but on the revenue share welcome to the T2CN, is there anything you can share with us on how we might try and quantify what that relationship will mean?

Pardon?

The reason why we haven't done that is we are thinking of some interesting accretive structures there. But, it will be governed by market norms. But at this time, we're not ready to release any numbers.

Okay. And then just maybe just an update on the ISP business and I know you've been looking at strategic alternatives for the consumer side, but maybe just touch on a time line for that? And then also the corporate side of the business the last couple of quarters, I know you guys have been hopeful about getting that to improve a little bit. But, are you still thinking of maybe hanging onto that piece a little bit longer?

On the -- first of all, on the consumer side of the business, yes, we think that we are working very actively, pro-actively looking at strategic alternatives and we hope that we will have some action within the next quarter, definitely. And on the corporate side of the business, as we mentioned before, this side we see all of the competitive pressure on managing but we still see a still less competitive and ever more compelling to us comparing to the consumer side.

And if you look at the numbers, we did -- fourth quarter last year was the best quarter, as we mentioned. We did slight pickup in the first quarter in terms of the revenue. And coming into the second quarter, we think the trend of increasing revenue will continue. So that is probably an area that we will hang onto at least initial from a short-term perspective.

And just lastly Arthur, on the last call you mentioned I think it was during the Q&A that Dynasty had been trying to contact you guys. So, I'm just curious, anything you can share about that?

Not at this time, I'm afraid.

Okay, that's fine. Thank you.

Sir, your next question -- .

Thanks, Traci.

Sure.

Arthur, your next question comes from the line of Chang Qui from Forun Technology Research.

Right. Good evening, Arthur and Tom.

Hi, Chang.

Hi, Chang.

And also congratulations on a very good result. I have a few questions. First Arthur, you mentioned you see a lot of interest from other premium names in this space regarding your games. Can you elaborate, what's your plan with them? Are you licensing the software to them? Or partnership with them for some kind of partnership? So can you elaborate here?

It's a very interesting time Chang, and I'm afraid that at this particular moment, it's a -- there's going to be a limit as to what I can say. We are considering both strategies, both a licensing strategy as well as a special partnership or partnerships. And, we hope to be back to the marketplace with some more news on that before too long.

I see, okay. And for FunTown, the $4.3 million revenue, is that mostly from Taiwan? Or you have contributions from other geographics?

The revenue comes from China, Hong Kong and Taiwan with the bulk of it coming from Taiwan.

The bulk from Taiwan? Yes, I kind of tried to see or to have a sense of how to size the potential here. Do you have any idea or marketing information, say even in Taiwan, how much market share Hong Kong has in terms of the software offering or on the tournament games that they're offering?

We believe we are a leading Asian casual game portal. But again, with online games and again in the entire Internet space, it's difficult to have strong data, reliable data as to market share.

I see, I see. And Tom, maybe just a question for you, with the investment in T2CN, you have a minority here right now. And also you mentioned, I think Arthur mentioned earlier, the valuation is 8.6 times 2006 earnings. So my question for you is, should we expect equity income in the future quarters?

As we -- Chang, as we have mentioned in our prepared remarks, the investment will be accounted for on a cost basis. So basically, there won't be -- you won't be -- there won't be equity accounting, therefore, no equity participation of the earnings there.

For the present time, we hold convertible corporate shares. And so, we will continue to hold them in that form for the time being. Naturally, if we do convert to equity, there may be -- we may revisit this.

[inaudible]

The kind of treatment may vary.

I see. Convertible preferred shares, does that carry any increase or no?

Yes. And it's an attractive instrument.

I see. In terms of the -- when your least of completed the investment in terms of again rollout, what kind of a schedule you see right now?

We're looking to roll out in the third quarter.

In the third quarter? Okay, all right. Thank you.

Great, thanks Chang.

[OPERATOR INSTRUCTIONS] Sir, your next question comes from the line of [Jeff Bockshaw] from Martin Currie.

Hi, Arthur. I'm really glad that things are going as well or perhaps better than I'd hoped. I just have a few questions that I'd be very happy for you to sort of speculate freely about. The first I guess would be the potential for the new offering from FunTown, so Tales Runner and FunTown Village, and whether -- I'd like to get a sense of whether they're going to be incremental only or whether they could be something more than that? And then in terms of the T2CN cooperation, I'd be very interested to sort of hear more about how you think that could develop in the long term? Thanks.

Sure, thanks Jeff. The first one, on FunTown and Tales Runner and FunTown Village, the FunTown Village is a very -- it's a delightful 3-D virtual world, and it has a high fun quotient in my mind. And it makes the experience one, not simply a cold menu where you're going to choose a game and go play a game, but one where you actually have a little avatar there that little buzzes around and goes up to other people and it's a fun little virtual world. In addition, there's a lot of again, very cute fun things you can do there, buy virtual clothes, trade virtual items, give virtual gifts, propose to a strange woman and offer to com-mingle your chips and points with them and -- or possibly get divorced with them. So, it's a very fun element, and I don't think of it necessarily as a revolutionary or disruptive type of a technology, which entirely changes our business or our model, but it's a very nice feature. We think it strengthens and increases our community offering and is a nice gateway to a wide variety of enhanced entertainment services.

Ultimately what we're looking to do is to build a comprehensive entertainment destination. This -- the FunTown Village is one of the entry ways into that -- the wide range of entertainment opportunities. So, there are game rooms where you can go in to play games, shops where you can go in to shop, community areas where you can go and shop, exchange items, exchange photos, and so it is in many ways is a nice gateway and central gathering place. We believe that community is very, very important in the success of an entertainment offering. And this is a nice community gathering point.

And is the -- and how does the revenue look from FunTown Village?

The village itself is free to enter but different elements of the village do cost money. Naturally, for example getting married costs money, we all know this and the giving of gifts of course involves a transfer of money from you to others of course, purchase of virtual items, articles of clothing. We have articles of clothing, articles of virtual clothes, which sell for about USSD$50 and actually sell quite well. So, it is -- again, it's a platform or a gateway for a wide variety of virtual entertainment alternatives.

Thank you. And then -- .

Moving on to Tales Runner, Tales Runner is an absolutely delightful game. We did not write it ourselves. We licensed it from a Korean software developer and it is a -- it's a game where one adopts the form and character of a -- what appears to me to be a large bunny rabbit type of creature with legs, and one competes in a variety of general races with other players, snow-boarding, running, jumping, doing a variety of different activities and I found him very adorable. And we -- in the closed beta launches, the results are very good. And so, we think that this is a potential big hit for us.

The nature of the game, if we were to categorize it, falls into what we are calling advanced casual games. So building on our strength in traditional table, board and chess games, we are now looking to roll out games, which are more traditionally similar to console games, games you might find on the Xbox 360 or the PS3, games with high graphic content and a very rich visual environment with a 3-D movement and a 3-D environment in which one moves and plays in. So, this type of game is on a multi-player, online basis is relatively new and we believe it has a strong -- a strong potential.

And that revenue structure?

Revenue structure will be as with our other casual games it will be of a fee to play either by way of subscription or on pay-to-play basis as well as the sale of in-game items. The question with respect to T2CN. Any further questions on [ChannelAir]?

No that's great thanks.

Okay good. On T2CN, T2CN is in my mind a fabulous company and a company with a very, very talented management team. They have built out their platform very rapidly, and with great success in partnerships with again some of the premier international brands. The management team many members of the management team come from the operating level from some of the other leading game companies in China and in Asia and they bring with them a great deal of hands-on execution experience.

And we are very excited to partner with them and to use their expertise and their platform to roll out the Asian games that FunTown has. And we see many, many areas of cooperation and of growth. One of the areas in which they've done very well is in running very, very large-scale provincial -- province-wide or countrywide tournaments. And we believe that the running of such tournaments which we do at FunTown here in Taiwan a great deal with have great potential and exciting, exciting opportunities for us to expand -- to increase the popularity and the stickiness of our games in China.

Do you know off hand what they're paying customer base is?

Yes their model is the sale of -- primarily the sale of in-game items. For example in their leading game, which is an online basketball game called Freestyle. The game model works as follows. If you are playing the game and you need more energy you can buy a Coca-Cola online, a virtual Coca-Cola and then get more energy. If you want to jump higher you can buy a pair of Nike tennis shoes, virtual tennis shoes and jump higher. If you want to run faster you can buy some special old virtual clothes, Nike-branded.

Or if you really want to have the smoothest moves you can buy these special long-haired dredlocks. So it's a very fun model and in addition to that they're rolling out two additional models. One the Tournament model where tournament entry fees are amalgamated and then offered as prizes. And second of all, in-game advertising. The nature of the game, for example, of Basketball Court is one in which the advertising information is readily available on the court and is not out of place to have a basketball court or banners around the basketball court containing different brands. So we -- that also is an area they expect to develop additional revenue.

Okay that's great. Thank you very much.

Thanks Jeff.

Sir, you have a follow-up question from the line of Chang Qui from Foreign Technology Institute.

Yes, Arthur again for your traditional gaming business like the Casino business should we factor seasonal weakness or should we expect because of your new game offerings some of the seasonal weakness with the offset by the new launch, newer game?

Chang this is Arthur. I believe that there will still remain a seasonal effect and this is a fact of life for the entire industry. Whether or not our new games and our poker offering and the growth of that will mask some of the seasonality we'll have to see. But regardless of what the numbers show -- in other words regardless of whether our line stays flat or continues to go up there will be implicit in that number some seasonality. I personally believe that that's inescapable.

I see, all right. Thank you.

Thanks, Chang.

[OPERATOR INSTRUCTIONS]. Sir, at this time you have no additional questions. I'll turn the call back to you for closing remarks.

Okay thank you. And thank you all for joining us again today. For further information about GigaMedia or if you have questions and would like to contact the company please visit our website at www.gigamedia.com.tw (for Taiwan). Thank you.

Ladies and gentlemen, this concludes your presentation. You may now disconnect. Have a good day.