GigaMedia Ltd (GIGM) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen. And thank you for standing by. Welcome to the GigaMedia Limited conference call to discuss fourth quarter and full year 2006 financial results. At this time all participants are in a listen-only mode. Following the formal presentation, instructions will be given for the question and answer session. [OPERATOR INSTRUCTIONS]. As a reminder, this conference is being recorded today, March 13, 2007. I would now like to turn the conference over to Mr. Brad Miller. Please go ahead, Mr. Miller.

Thank you. This is Brad Miller, Investor Relations Director of GigaMedia. Welcome to our fourth quarter and full year 2006 results conference call for GigaMedia Limited.

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 2006.

This presentation is being made on March 13, 2007. 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 rebroadcast, retransmitted or redistributed at a later date, GigaMedia will not be revealing or updating the material that is contained therein.

The agenda for today's call includes first a review by Arthur Wang of our Q4 and full year business activities and financial performance. Thomas Hui will then provide details on our financial results during the period. After the speaker presentations, we will go into a question and answer session.

And with that I'd like to turn the call over to Arthur, our CEO.

Thanks Brad and thank you all for joining us. We are very, very pleased to announce today our 2006 full year and fourth quarter financial results. Full year revenue climbed 113% driving a net income line that tripled to $30.8m from just $6.3m in 2005.

[Technical difficulty] quarter. The outstanding full year numbers for the results of an even more outstanding fourth quarter. We recorded an all time high consolidated net profit of $9.8m. Most noteworthy, our quarterly operating income crossed $8m for the first time in Q4 pointing to an even better 2007. In simplest terms we had a great year, with excellent performance in every business unit.

But although we delivered today strong financial results, I believe the 2006 numbers tell only half the story. Even more important are the key strategic accomplishments of the year.

Let me review our main business units, with a focus on our strategic positioning. First our poker and traditional gaming software business. Over the last three years, we have invested heavily into building a leading pan-European online entertainment brand and platform. And we've enjoyed remarkable success led by our Everest Poker product. Everest Poker was a new product we developed internally in 2004, launched in 2005 and from that standing start have grown approximately 50% quarter-over-quarter in each of the last five quarters.

Today, Everest Poker stands at the top of the ranking as one of the top five poker platforms in the world. And actually one of the top three in the world, excluding sites that continue to accept United States players. We've built a well-known and well-respected online brand. A Pan-European, online entertainment, branded platform serving the 350m consumers in the European community with a localized offering in 11 languages. We plan to continue to invest in building this brand and platform to enhance our entertainment offerings and by doing so to increase our ability to monetize on the platform as revenue and operating leverage increase.

I believe Everest Poker is a demonstration of both smart strategy and strong execution. We have grown rapidly in part because of strong focus, strong execution, and in part because of our strategy of targeting the emerging growth markets, Continental Europe and the giant non-English language markets of the world. I note that all of our growth thus far has been organic, although we continue to explore partnerships, business combinations and acquisitions, which would create shareholder value and expand our market position.

Next, our Asian casual game business. 2006 was a key strategic year for us in Asia. We began the year with our FunTown casual game platform in Taiwan and Hong Kong. And have been busy building a pan-Asian game platform primarily by acquisition. Today, we have an online game platform that spans most of the Asian continent, with large user numbers. At present, we have over 50m registered users, that's 50, 50m registered users. Over 7m users active in the last 30 days and peak concurrent users of over 175,000.

To this, we add South East Asia, where we are the largest shareholder with about a 30% equity interest in an emerging leader Infocomm Asia Holdings. We believe the market opportunity in South East Asia is similar to that of China three or four years ago.

All told, we have built an online game platform with an enormous footprint, providing the ability to deliver entertainment to users on a scale and with the efficiency of broadcast television. We believe this platform which we initially monetized with online games, provides us with an opportunity to deliver a wide variety of entertainment for ourselves and future partners.

Notwithstanding our outstanding performance in 2006 and the strong financial results we report today, I personally am even more gratified, even more excited about the strategic moves we have made and about the powerful online platform we are building. I believe the results today are but the early returns from our strategic investments into building a dominant online entertainment business.

Looking forward, I can say the first quarter is going very well, with continued strong growth in both Everest Poker and our Asian online game business. In our poker software business, we are launching Everest Poker in three new languages, addressing an additional 70m consumers, bringing our fully localized solutions from 11 to 14 languages, more than any other platform. We've also released a completely new table design, integrated voice chat into our gaming platform and enhanced our underlying software code to offer improved speed and performance for improved player experience.

Q1 also sees the launch of our real money MahJong software by our initial licensee Carmen Media. We look forward to reporting further on this and our own initiatives into the Japan market, in the near future. We continue to be excited about the potential of this real money Asian game business and expect it to be a strong contributor for the full year.

In summary, 2006 marks the completion of three years under the new management team at GigaMedia. We have traveled far from our early days as a loss making ISP and music retailer to our current position as a leading online entertainment provider. We are thrilled with our progress to date, confident in our ability to continue to execute on our plans and excited about our strategic position and prospects. We are building a new GigaMedia, with growing shareholder value as its cornerstone. We thank you for your interest and continued support.

Thanks Arthur. This is Thomas Hui, the CFO here. Let's now look in more detail at the financial performance of our business in the fourth quarter.

I will start with our consolidated results and then move to look at each business unit. The fourth quarter of 2006 was outstanding from top line to bottom line across all our businesses. During the period GigaMedia again delivered excellent organic growth.

Let me quickly summarize the quarterly results. Consolidated revenue grew 155% year-over-year or 23% quarter-over-quarter to $30.1m. The key drivers for our quarterly sequential revenue growth were record performance in our poker software business and significant top line growth in our Asian online game business. Operating income rose 361% year-over-year and 33% sequentially to $8m as a result of increased revenue and expansion in our consolidated operating margin.

Our operating income margin jumped to 26.7% from 14.8% a year ago and 24.8% in the previous quarter. The strong performance of our Asian online game business FunTown in the fourth quarter drove both the sequential and the year-over-year expansion of our margin. Net income jumped 317% year-over-year and 52% sequentially to $9.9m resulting in fully diluted earnings per share of $0.17.

As stated in our release today, our fourth quarter net income also benefited from an after tax gain of $1.9m as a result of the sale of certain marketable securities during the quarter.

We also maintained our financial strength during the quarter. During the period, our cash, cash equivalent and current marketable securities increased from $35.1m to $36.2m. Operating cash flow for the period increased to $9.1m, partially offsetting cash payment during the quarter for our strategic investment in Infocomm Asia and our exclusive licensing of Hellgate London, which together amounted to $12.5m.

Capital expenditure was $1.8m for the quarter. And we recorded total debt of $12.9m at the end of the fourth quarter.

Overall then, our business ended the year performing better than ever and continuing to gain momentum. We are thrilled with our progress to date and excited about our growth prospects.

Let's now look at our business unit performance, the gaming software business. The business unit again delivered all time highs in revenue and net income. During the fourth quarter, the business unit generated $19.8m in revenue representing 183% year-over-year growth and 34% growth sequentially. Operating income increased 155% from the same period in 2005 and 29% sequentially. Operating income margin decreased slightly to 30.3% from 31.6% in the previous quarter due to increased selling and marketing expenses. Net income grew to $5.9m, a 219% improvement year-over-year, or 30% growth sequentially.

Let me quickly break this down further into results for our poker software business and our traditional gaming software business. Our poker business again achieved a record result. Revenues from our poker software products were $12.9m, up 54% sequentially. Poker revenues represented 65% of [inaudible] total revenue. This growth was largely driven by the increase in the number of poker players on our platform. Approximately 90,000 active depositing real money customers played Everest Poker during the fourth quarter, up 47% sequentially. And during the fourth quarter, approximately 43,000 new depositing real money players were added.

Everest Poker [user end] revenue growth has been driven by efficient targeted marketing and brand building initiatives including high profile poker tournaments. During the fourth quarter, our licensee kicked off another exciting poker tour, the Everest Poker Nordic Summit, which targets the Scandinavian players. Everest also launched its biggest event ever in late December, Avalanche, a $1m poker tournament that runs through September. Everest and Avalanche are off to a flying start in 2007, positioning our poker software business for what looks to be another great year.

The traditional gaming software business also delivered strong results. Third quarter revenues from the traditional gaming software business were $6.9m. This represented a 44% increase year-over-year and 8% growth sequentially.

In summary, this business unit continues to scale up rapidly. We believe that there is plenty of room for growth potential from organic expansion in our target markets. And we are confident in our ability to compete successfully in this market.

The Asian online game business, FunTown. FunTown accelerated its growth momentum in the fourth quarter, delivering sharply improved performance. During the period, we continued to execute our strategy to expand our game offerings to attract new gamers and increase gamers' spending through offering an increased selection of in game virtual items. And we supported this with strong marketing initiatives in both the third and the fourth quarter of 2006.

As a result of these initiatives, we accelerated the momentum we started to generate in the third quarter in our top line and experienced a significant improvement in our fourth quarter operating margin. Revenues in the period increased 16% sequentially. Operating margin increased to 35% from 27% in the previous quarter pushing up net income 48% sequentially. EBITDA margin was a healthy 44%.

Let me briefly go over a few key initiatives in the period. During the fourth quarter we continued our strong marketing initiatives, which began in the previous quarter. Which include the launch of a large mass media campaign, with television commercials in Taiwan focused on our leading MahJong offering and traditional board games. On the product side, we continued our program of monthly releases of new virtual items. As a result, monthly revenue per active paying account increased 20% sequentially to $16.6 in the fourth quarter.

In addition, our newly licensed advanced casual game Tales Runner continued to increase in popularity. It is now one of the most popular online casual games in Hong Kong and is gaining traction in Taiwan. Tales Runner was a meaningful contributor of FunTown's fourth quarter revenues. And we expect this contribution to increase in the first quarter. We also expect to launch two to three newly licensed games in 2007 to further enhance our product offerings.

During the fourth quarter in 2006, we also announced a number of strategic growth initiatives in the Asian online game sector. Let me take a moment now to review each of these. First, Hellgate London. The global launch of Hellgate London is scheduled for the second half of 2007. We showcased Hellgate London at last month's Taipei Games Show, which attracted tens of thousands of gamers. Given the extraordinary feedbacks we have received, we expect the addition of Hellgate London to significantly increase our revenues and profitability.

Second, our China platform T2CN. As stated in our release today we will begin equity accounting for T2CN in the first quarter. We are in very early stages of building this growth platform and expect near term financial contributions to be relatively modest. However, our focus on sports, our large and already established player base and our access to a deep pipeline of games through our relationship with Korean developer and operator CJ Internet, all position us to deliver significant long term growth.

Third, our South East Asian platform investment in Infocomm Asia. As this investment will be cost accounted for, we do not expect any immediate direct financial contributions. However, Infocomm Asia further broadens our already unmatched regional footprint, giving us a strong position to secure regional licenses to top online games. We are also well positioned to develop regional marketing relationships with leading international brands and secure operational leverage through our regional footprint.

Finally, a quick review of our broadband ISP business. Our legacy broadband ISP business delivered another stable quarter. Increased revenue on the corporate side of the business helped offset a slight revenue decline on the consumer side of the business. And we continued strict cost and expense control measures. As a result, we post revenue of $5m and operating revenue of $1.3m for the period.

We expect a relative contribution of our ISP business to our consolidated financials to continue to decline. Specifically in the first quarter of 2007, we expect a decline in revenue and decreased profitability in the legacy ISP business, as part of the services fee we receive in relation to the sale of our ADSL business will end in this quarter. This is in line with our ongoing strategy of shifting resources away from this legacy business.

To summarize, in 2006 we laid a foundation for a powerful online entertainment platform. We delivered tremendous growth in our gaming software business, especially in the poker business. And added another high margin growth engine, our Asian online game business.

We are thrilled with where we are now, excited about the opportunities and growth prospects in front of us and confident in our ability to execute and continue to deliver. 2007 promises to be a very exciting year. And we look forward to sharing it with you as we continue to grow shareholders' value. Thank you.

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

[OPERATOR INSTRUCTIONS]. And your first question comes from the line of Traci Mangini with ThinkEquity Partners.

Thank you. Good morning or good evening actually for you guys. Just, if you can give us a sense on the FunTown business and in particular with the launch of real money MahJong in Taiwan. What type of conversion or cannibalization if any do you expect from folks moving over from the play for fun to the play for money?

Hi Traci, this is Arthur. We are not launching real money MahJong in Taiwan and so we expect no cannibalization there. Of course there is illegal gambling and has been for a long time in Asia. And so I would suggest that we probably already compete against illegal offerings, underground casinos and the like. And basically target a different sector and basically address a different marketplace.

Oh, okay. Well, then can you speak to --

[Inaudible].

Yes, I'm sorry, Thomas.

I just wanted to say I guess to your question, with respect to the FunTown business which is purely a casual play for fun basis, the growth we've seen in the fourth quarter was primarily -- it was not because of any launch of the real money side, which we don't have a plan to. That was primarily because of the continued execution of our two strategy. One is to increase existing customers, player spend by increasing the amount and variety of virtual items we have in the offering. And together with newly licensed games, and Tales Runner was the first one last year. So both strategies are yielding results in the fourth quarter together with our marketing strategy. One expects to continue to adopt these two strategy in 2007, to continue to increase the revenue growth there.

Okay. And so with respect to real money then, can you speak about the geographic focus that Carmen will have?

We're given a license to operate in Asia and we, as a software provider, are not privy to certain operational details that is I guess proprietary for them.

Okay. And also just is there any type of -- I realize you're going to launch it in the first quarter at some point, can you speak to -- I don't know if it's necessarily delays, can you just talk about the timing of it? Whether it's technically ready to go or is it just logistics or waiting for Carmen to decide to move? What's the timeframe on it?

Technically, we have delivered the software and I think the operational decision is up to the licensee.

Okay. With respect to T2CN, is there -- can you, I don't know if it's appropriate. Can you speak to their ability to -- how they're improving since the summer hacking issues that they had? Do you see remarkable improvement there? Or is it still kind of --

Absolutely. One of the reasons why we're so excited about the opportunity at T2CN is their ability to -- their response to a very difficult operating situation. They launched the leading online sports game in China, this game called Freestyle. And unfortunately, over the summer there was a hack that allowed players to score at will essentially. And greatly disincentivized people from playing a game, when the guy you're playing against can score any time he wants to, without even facing the basketball court say.

The team at T2CN worked closely with the developer of the game and in September launched a patch and a fix to the problem. Since that time, the game has been able to regain an enormous amount of its previous market share. And that is quite noteworthy in the game world, where usually a game gets momentum and people play it, and if it's no fun to play, they walk away and there are always new games for them to play. The fact that this team was able to draw back the user numbers that it has, where today Freestyle is the number one game in China, of a sports nature, we think is very impressive.

Okay. And then Thomas, the last question is just for you. On the Infocomm investment, you said you're at about 30%. And we saw on the news last week talking about their IPO and they gave some projections for net income. Where will we see that? Are we going to see that on the minority interest income line for you? And when would you expect to be starting to see that?

Right now, the investment, because of the securities we used to invest in the company, which is the preferred securities, we will be accounting it on a cost basis. So you will not have any direct impact from a P&L perspective on our balance sheet -- on our income statement. So until such point that the securities we invested in this, convertible preferred shares, until such time we decided to convert into the common shares, you will -- there may be a cost [account in] securities and therefore will not have any P&L impact.

Okay. And speaking about the T2CN, you had mentioned that you were going to, I think you said consolidate in the first quarter. Did that convert -- did that step up a little bit? I thought you weren't able to convert until May.

Right. We believe in the first quarter we will equity account our interest in the company. And upon conversion of the remaining pref shares we have, we would cross over the 50% threshold. And therefore be able to consolidate the entity, probably towards the second half -- sorry, second quarter.

Okay, great. Thank you.

Your next question comes from the line of Todd Eilers with Roth Capital Partners.

Hi guys. How are you?

Good, Todd.

A couple of questions here. I guess, for one just maybe talk about the current regulatory and legal landscape in European markets. You got some recent news out with a positive ECJ ruling in Italy. I haven't really heard any news regarding Germany and France. Could you maybe update us on your thoughts on the regulatory environment? It seems that it's moving in a more favorable direction for online gaming or real money online gaming operators and suppliers. Can you comment on that?

Sure. As you can imagine Todd we closely follow the regulatory developments around the world, and fortunately we continue to see very positive developments in the overall regulatory climate, in particular in Europe. We note with great pleasure the recent European Court decision handed down just last week, in a case called [Pluckanicka]. Where the European Court ruled conclusively and upheld the principle that member governments of the EU, may not seek to prohibit the free movement of either goods -- the free offering of goods or services between member nations. Especially to protect their own domestic gambling monopolies.

It's my personal belief that this landmark case will have a tremendous impact on the regulatory environment in Europe, resulting ultimately in the removal of barriers to the offering of online gaming. That being said, I think it would be unrealistic to expect all member nations suddenly to throw up their hands and be compliant. I suspect the domestic monopolies will still attempt to impede, or to slow down, a true opening of the market. But I believe this decision, as well as many of the other developments, are -- have basically set the ultimate conclusion, that made the ultimate conclusion quite clear.

Okay.

In particular in France, in Germany. In Germany we see no imminent movements. We are studying the recent movements in France, based upon what we understand so far. My personal expectation is there will be no significant negative impact on our business.

Okay, great. Can you also maybe talk a little bit about what type of effect you guys might be seeing on the poker side of the business, with the recent pullout of NETeller from the U.S. market? Are you guys seeing an increase in player traffic, as you guys offer a highly liquid poker network? Whereas maybe some of the other larger players that were exposed to the U.S. markets may be -- might be suffering a little bit from the NETeller pullout. Are you seeing any benefits from that?

Todd, I -- naturally we have limited information into the actual affairs of our competitors, in particular the private operators. But from what we understand, in particular those operating in the United States, are being hit quite severely. And at the same time our poker numbers continue to grow. We continue to set new internal records every month. How much of this is directly as a result of the NETeller pullout, and the difficulties our competitors are having, and how much is a result to our own marketing efforts is difficult for us to say.

Okay, fair enough. Let's see. With respect to maybe your outlook and guidance, we are pretty fair way through the first quarter. Care to give any kind of, I guess, further color on individual business units, with respect to maybe poker, casino and the casual online space, in terms of what you're seeing right now in the quarter? Looks like you had obviously very strong sequential growth in the poker business. Shall we see something similar to that in -- or do you expect to see something similar to that in the first quarter?

Todd, the -- yes, the poker business, the fourth quarter versus third quarter growth obviously was very strong because this seasonality effect. Traditionally the fourth quarter being a stronger quarter and the third quarter being a weaker quarter. What we've seen so far in the first quarter, is the growth momentum continues at a slightly less level than the fourth quarter versus third quarter level, but still very, very strong.

And for the casual game business, we saw a 16% pickup in the top line from the two strategies we mentioned. And that strategy has been continuing in this quarter, and we see a similar level of revenue tractions from the data we have so far. So poker business is growing very strong. Now the ISP business, as we mentioned, is a legacy one and we do expect some revenue decline in that one.

Okay, that helps. And then with regards to sales and marketing, this is my last question. But with regards to sales and marketing, do you guys still anticipate that being between maybe 30%, 35% of revenue? I mean obviously if you guys see opportunities to spend some money to grow the top line, you're going to take advantage of that. Just trying to get a feel if you still see that as a range going forward.

Sure, that continues to remain -- to be the range that we look at now. But given the business opportunity in front us, that continues to be the range we operate under. As you mentioned Todd, exactly what you -- like what you mentioned. Like for example in first quarter, in the casual game business we -- there was that big online games show which we participate [in]. We're the biggest, largest exhibitor showcasing the Hellgate London game. And that obviously would increase the selling and marketing expense for the casual game business quite a bit in the quarter. But over a period of time that is roughly the range we are operating under.

Okay, great. Thanks guys.

Your next question comes from the line of Chang Qiu with Forun Technology Research.

Right. Good evening Arthur and Tom.

Hey Chang, how are you?

Hey Chang.

I'm fine and also congratulations for this very strong result. I actually have a few questions, follow up with the last questions from Todd. A full clarification. Arthur, are you saying even the France situation turns less positive, you think the impact to GigaMedia is not as significant?

Yes. Based upon our understanding of the legislation and operations in France, we -- my personal belief there'll be not a significant impact on us.

I see. Okay, that's great. And, Tom, you kind of mentioned that for the short-term basically looks like the strongest growth with this year from the poker side. And followed by maybe the FunTown and then casino, and maybe real money MahJong. If we look at slightly longer term, maybe later this year or next year, and how you rank all this growth drivers in terms of amount of growth?

Ranking them may be a bit unfair. They all start from different basis. But we believe the poker business do have a lot more room to grow, even beyond the next few quarters, extending into second half of the year. We believe FunTown's platform on the existing products, through the licensing of the newer games and also selling of more virtual items, that actually has quite a bit of room to grow.

And in the second half of the year we're going to [upgrade] that and complement that, by launching of obviously a very big game, Hellgate London. Second -- probably the second quarter or second half of the year, we think the contribution of T2CN, both from a direct financial perspective and also from a strategic perspective, will be more apparent. So all of these will increase the contribution from the Asian online games platform, that we've been building throughout last year.

So at the end of the day we think all of these will deliver a significant amount of growth. But if you're just talking about from a pure dollar and cents perspective, obviously the casino -- sorry, the poker business right now has the largest base. And therefore, on the incremental basis, it has the highest amount of growth.

Right, and you did mention earlier the really -- real money MahJong will be a significant contributor for '07 too, right?

Yes. I continue to be very bullish about this business.

Okay. Yes, that's great. Thanks.

Thanks Chang.

Your next question comes from the line of [Andre Esteiner] with Notre-Dame Capital.

Good morning.

Good morning.

I have a couple of quick questions concerning the MahJong, the cash wager version.

Yes.

I was wondering if you could go a little bit more into detail about the profit model?

Sure. We -- As you know, we begin with the base of having a play-for-fun MahJong platform that is the largest in the world, in terms of revenue. This MahJong platform is offered now on a play-for-fun basis only. What we have done is taken this play-for-fun software and combined it with our experience of operating, 24/7, real money, cash wager business. That is making sure it is a highly secure and highly trustworthy platform.

And then license that, initially to one licensee but quite likely to others in the near future. The business model, as a software provider, can vary depending upon the exact range of services one provides. Whether it is merely a download of the source code, and then you say go to it. Whether or not there are additional services added on, such as monitoring and helping the operation and different things of that sort.

Generally speaking, there are some upfront fees and then a variable licensing fee, depending upon again the nature of license and the strength of the parties involved. But license fees may range from, I suspect, in the market from 15% to 45% of revenue, 15% to 40% of revenue maybe is a range.

Okay. Have you ever considered the play-for-points model?

By play-for-points I think is probably what you mean what we do right now with our FunTown platform, and with all of our online casual game platform in China. And that is where one plays for virtual status, and that can be reflected in a larger bank balance of points or of virtual gold coins. It could be reflected -- successful play can be rewarded with better looking avatars, better clothes for one's avatar. More purchasing power of other virtual items, some which are vanity-related, i.e., appearance-related. Or some which are performance-related, for example in our basketball game we can use the online currency. One could use the online currency to purchase Nike branded virtual tennis shoes to jump higher, Nike branded virtual clothes to run faster, or virtual cans of Coca-Cola to give you more energy to play in the game.

Okay, and with regards to the World Series of MahJong.

Yes.

I was also curious as to when and where, and any sponsors? Have any of them signed on yet?

I don't think we're ready to release details of -- I'm afraid, of any of those factors. I believe the European tournament has been calendared, I think it is in Denmark this year, but I'd better get back to you on that. And there'll also be North American and Asian variants as well as the final. But we'll definitely be making a lot of noise hopefully and a lot of -- be a lot of publicity surrounding those events.

Okay, and one last quick question. To contrast your short versus long-term country targets. Would you be able to tell me where you think your long-term bread and butter will be from this MahJong software?

This is an excellent question because I think it goes to the heart of our strategy. What we're trying to do is to be an online entertainment platform and -- with enormous platform reach. We now have a platform that extends from South-East Asia through North Asia. We hope to add Japan to our platform, and then to be able to address something like a third of the world. And on that platform to be able to deliver a wide range of different entertainment forms.

We begin with games because games are early monetizers. But we can easily imagine a world, in which a whole wide range of different entertainment offerings are delivered through this channel. So we believe the value creation is in building the channel. We like the channel to be as large and as broad as possible, so that we can find the right product to deliver in any of the markets the platform serves.

So we don't think necessarily in terms of single countries, but we think in terms of having a higher pan-Asian platform for delivery of entertainment products.

Well thank you very much. All the best to all of you.

Thank you.

Your next question comes from the line of Alicia Yap with Bear Stearns.

Good evening Arthur and Thomas.

Hi Alicia, how are you?

Good, really good. It's a little bit tired but I'm good. Yes. So I have a few questions. Now the first question I have is regarding the pressures in the [inaudible] business. You have an impressive ARPU this quarter, [$16] [inaudible], [$16.60]. Do you think that you can maintain around the [$16] for future quarters?

Yes, the ARPU was high in Q4 for the reason we mentioned, because of our marketing initiatives and the fact that we rolled out quite a bit of virtual items, which were well accepted by our player base. And -- so it was actually the highest of all the quarters we have reported last year. So the ranges of the ARPU for the fourth quarter last year range from $12.60 to $16.60. So we think we will continue to see fluctuation of these numbers.

But we believe that the player base we have because the demographics is actually slightly older, 25 to 35, so that they have more purchasing power, disposable income. And to sustain a relatively higher ARPU, comparing to other casual game offerings or MMORPG offerings with the region, we think that is something that we strive to achieve. So while there might be fluctuation we hope to maintain a high number.

Okay. Now in terms of your active paying players, in this quarter, it actually decline a little bit. Is that a concern to you at all?

No. That also is something that fluctuates within the normal ranges, as we see them on a quarter-to-quarter basis. And as we -- we do see quite a large registered user base and some of these players do come back to us. And we do have programs in place to, over a period of time, to try to re-attract some of the old players that have not been on our platforms.

So we think we are a brand rich within markets, as broad and deep enough for us, as long as we continue to refresh our products, the customers will continue to be here. Because this is not, again if I can remind you, the product which is key selling here is not like a one MMORPG product that has three years lifespan. This is a whole platform of casual games with MahJong game and the board and chess game being the dominant, key, leading products. And this set of products has been around for a long time. It is the community in fact we're selling. It is the satisfaction of interacting with each of the players that we're selling and we believe that is, has a much more longer lifespan.

So I would guess like more creative virtual items selling will drive more of the growth, rather than addition of active playing players, right?

Yes. I think it's two prong strategy. One is for -- of the existing customer base who are attracted to our FunTown platform, on the board and chess and the MahJong platform, will continue to have a more attractive, in-game items to increase their wallet share. And the second prong of the strategy is to license, as I mentioned in my prepared remarks, advanced casual games. This will hopefully attract a different clientele and increase the number of customers who play FunTown games. So this will be on a license basis similar to Tales Runner. And we have a few games in the pipeline and in due course we will be making announcement of them.

Okay. Now in terms of your Tales Runner, you had improved performance. Would you be able to disclose by how much contribution Tales Runner to this quarter's revenue?

We don't disclose game by game our revenue contribution. As I mentioned, it's already a meaningful contributor. It is -- I can tell you that it's still below 10% but that number is -- it was below 10% in Q4. But that number was growing as already above 10% of FunTown's revenue in the first quarter, so far we have seen.

Alright, okay, that's great. So, okay, now is there any strategic reason why you sold Gamania stake?

We have been -- we actually have always owned Gamania shares even before the IPO. This was a lot -- there was long corporate history between GigaMedia as a ISP in the Taiwan contacts, and Gamania being a online game company in Taiwan. We've maintained about 3% of their shares until December last year. We're also on their board. But we disposed of the share not for any particular strategic reason we saw. There is -- I mean there is no strategic reason why we really want to hold it and the price was good, we chose the time to exit out of it.

I see. Okay, that's great. And the one last question is on the poker software. I think Arthur mentioned that there were three new languages launched for the software. Maybe I've missed that. Can you tell me what are the three new languages?

It's Polish, Hungarian and Finnish.

Okay, alright, great. Thank you so much.

Thanks Alicia.

Your next question comes from the line of Bill Garrison with Ironworks Capital

Yes, good evening and thank you for taking my question. For purposes of modeling, as you look at the margins within the casino -- or within the Everest brand, would you say that the current margins are essentially in line with where you think long-term margins should be? Or are you still in investment mode and over time we can expect those to move still higher?

Yes. The 30%, around 30% operating margin is where we think the short to medium-term margin would be, given the opportunities we have in front of us. And that will mean, with the increased revenue, we invest the increased revenue back into product development and also licenses kit, selling and marketing. So over time in the long run we should -- we expect, we do expect upside on the margin. But on the short to medium-term we think the current margin level is where we're comfortable with.

Okay, thank you. Secondly, you mentioned in the press release the benefit in the fourth quarter within -- on the casual game side from mixed expired game cards. Could you disclose a revenue or operating income contribution from that one-time benefit?

It's not a one-time benefit because game cards are sold on a prepaid basis in this business model, which is quite prevailing and common in Asia. So on the prepaid business, just like any other prepaid business whether is telecom or not, expired -- retrieval of expired game cards sold but unused is a recurring revenue. So the fourth quarter, we point that out, that is something that we are planning in the fourth quarter. We'll continue to do on a quarterly basis every quarter in the future.

Okay, and can you give us any order of magnitude to the contribution?

It's just a couple of hundred thousand, $100,000 to $200,000.

Okay, alright. And lastly, can you remind me within FunTown a broad range of the overall game platform, what percentage of the play is your MahJong play?

The -- okay, over 90% of the revenue from FunTown generated from the MahJong/board and chess game. As we mentioned, the remaining is coming from the Tales Runner games which -- whose -- which contribution has been increasing quite significantly. Now MahJong of the 90 odd percent is more than half of it.

Okay. Alright, thank you very much.

Thanks Bill.

[OPERATOR INSTRUCTIONS]. And your next question comes from the line of Andrew Schopick with Nutmeg Securities.

Thank you and good morning. I did want to ask if you know approximately what percent of your investor base is currently comprised of U.S. investors?

We're looking to see whether we have any good data on this.

Secondly, what are your plans for visiting the United States in 2007 and presenting or appearing before the U.S. institutional investors?

Sure. Yes, based on the latest 13-F filings we have received, we have about 35% of the investor base institutional investors who have reported. As to whether they are based or out of the U.S. is hard to say. But most of these do need to file with the 13-F, and if you count that as the proxy then you'll be about 30% something that we -- 35% we know for the institutional side. On the retail side obviously we do not have any insight into that.

Understood. Any plans to visit the U.S. for various investor presentations this year?

Yes. Right now we have not had a timing set up yet, given the various things we're working on. But typically after an earnings release like last year, after our first quarter revenue release, we did do a round of five cities, five days in the U.S. And we are considering that this year as well but the timing of which has not been finalized.

Thank you very much.

Thank you.

And there are no further questions.

Okay. Thank you very much operator, and thank you again everyone for joining us 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 for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.