GigaMedia Ltd (GIGM) 2008 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 the fourth quarter and full-year 2008 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 31, 2009.

I would now like to turn the conference over to Mr. Brad Miller. You may proceed, sir.

Thank you. This is Brad Miller, Investor Relations Director of GigaMedia. Welcome to our fourth quarter and full-year 2008 results conference call for GigaMedia Limited.

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 20F, filed with the US Securities and Exchange Commission in June 2008.

This presentation is being made on March 31, 2009. 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 redistributed at a later date, GigaMedia will not be reviewing or updating the material that is contained therein.

After the speaker presentations today 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 today. Today we have Thomas Hui, our President and COO, and Quincy Tang, our CFO, with me.

I will begin with a strategic overview of our business, followed by Thomas, who will discuss operational highlights, and finally Quincy will take us through the numbers in more detail.

In 2008, we delivered solid results, despite the difficult macroeconomic environment. Full-year revenue was up 25%, and full-year net income up 14%, both driven by 22% growth in our poker software, casino software, and a 39% growth in our Asian online games business.

Turning to 2009, we are highly confident in the fundamental strength of our business, and the high quality, low cost entertainment value we provide to our millions of players worldwide.

On the poker/casino side, our top line softness is reflecting the macroeconomic downturn. But the key player metrics, in particular new player acquisition, remains solid, demonstrating the continued appeal in the entertainment value of the Everest gaming platform.

Players continue to come, but they are betting less. So, we are increasing cross-marketing between our gaming platforms, continuing to release new games to enrich the gaming and entertainment experience, and utilizing new marketing partnerships, While at the same time, implementing an appropriate set of cost reductions and controls, all with the goal of maintaining our financial performance in line with last year.

In Asia, we have one of the strongest game pipelines in the region, and expect to see both strong growth of the top and bottom line in 2009. Some of this pipeline are games which were slated for 2008 release but were delayed, meaning we have an especially strong 2009 and 2010.

Let me turn now to the specific business units, and highlight what we are doing to strengthen our business and sustain our momentum.

First, our poker and casino software business. The challenging operating environment, which began in the fall of 2008, has continued into the first quarter 2009, where we are now looking at an approximately 10% Q-on-Q fall in revenue for poker and casino. We believe, however, that our core business in entirely sound, and that with proper execution of our 2009 plan, and the eventual return of consumer confidence, we will be well positioned for a return to strong growth.

Everest Poker remains the fourth largest poker site in the world. Everest remains one of the most popular and well known poker rooms in Continental Europe, according to a recently published player survey. For the last two years, Everest Poker has been awarded Poker Operation of the Year, by independent industry journal eGaming Review. And, despite the economic downturn, Everest Poker continues to perform as well or better than almost all of our competitors.

We believe our Q1 revenue softness is fundamentally attributable to macroeconomic issues, the serious economic downturn in Europe, and the depreciation of the euro.

Though per player revenue is down, our new player acquisition continues to be fine, giving us confidence that once consumer confidence returns in the coming months, we should see player yields return to historic levels.

Nonetheless, as a matter of prudent management, and to protect profitability and cash flow during this downturn, we are making a number of changes to our cost structure, which should yield significant cost savings. We estimate between $5 million and $6 million of savings a year.

Please allow me to highlight a few of the steps we are taking. First, staff reductions. This week we executed a layoff of approximately 8% of the staff at our Cambridge entertainment software unit. We do not expect this cut to materially impact execution of our 2009 plan.

Second, affiliate partner program. We anticipate additional cost savings from cost-per-acquisition, cost containment functionality, in our new affiliate management software to be launched next month, as well as some improved terms with our affiliates. Naturally, we are carefully balancing these cost-saving opportunities with our ongoing player acquisition targets, but anticipate these savings to begin to occur in mid-Q2.

Third, payment processing costs. We have recently identified new payment processing channels, with more competitive rates, which should yield significant savings beginning in mid/late Q2.

While cost reductions and improved efficiencies are an important and prudent management policy, we, at the same time, continue to drive the business with our new products and marketing initiatives. In the first quarter, we released a new suite of flash-based casino games, as well as teaser games with no download requirements, to attract players and improve conversion to real money play.

In addition, we introduced a new VIP player store, which allows players to use VIP and loyalty points to purchase merchandise. The first quarter also saw the launch of the 2009 Everest Poker European championship, and the Everest sponsored Spanish Poker Tour. As well as promotions and qualifying events for the mother of all events, the World Series of Poker, for which Everest Poker is the exclusive poker sponsor.

For the rest of 2009, we will continue to drive the business hard, as a leaner and more efficient operation. Moreover, we invested heavily in numerous initiatives during 2008, and are excited to begin to see the yield on these investments now in 2009. Let me highlight some examples.

Cross-marketing. We will be launching the next phase of our common wallet technology in Q2. A major step in our next generation platform. This will allow us to more effectively cross-register players seamlessly between our existing two verticals, as well as our new Everest bets and future products.

We anticipate that this phase will materially improve the rate of cross-registration from poker to casino. Despite some initial steps, our monetization between poker and casino is still but a fraction of our competitors, which suggests we have considerable additional [modernization] available here.

Local marketing partnerships. In 2009, we look to expand our brand and our market presence by entering into marketing partnerships with strong local media groups and entertainment firms. We are currently in discussions with partners in Italy, France, Germany, and Spain, and look to finalize our initial deals within the next months.

Business intelligence. We are now starting to get a return on the significant investments made in 2008. We now have dramatically improved visibility into our business, and with greater facility and speed.

With these tools we look forward to deep, accurate, and timely database marketing across the platform, based on a refined understanding of customer behavior and profiles, all to maximize player lifetime buy-up value.

The new generation Everest Poker. We are very excited about our new Everest Poker front-end client, to be released in the second quarter. Our customer tests show an 18% lift in download conversions from this new front-end client.

Sports betting. This remains a young initiative, which began at the end of 2008. We are working very closely with our partner, Victor Chandler, and are bullish about the future. We believe the key driver in 2009 will be a more tightly integrated solution, where the players remain on a common wallet, are able to easily move chips and funds between the verticals, obtain and use loyalty points throughout the Everest portfolio.

World Series of Poker. The grand finale and conclusion of the 2008 World Series of Poker, in November 2008, instead of July, as in past years, has meant that the television broadcasts of the World Series of Poker have only partially begun. Many key markets, including Italy, Spain, Portugal, Sweden, Denmark, and Russia, have yet to start airing programs, and most other countries have only completed limited or partial broadcasts. All of this means continuing TV promotion of Everest Poker, in our target markets.

But in addition to ongoing benefits from the 2008 World Series of Poker, we are especially optimistic about the 2009 event, which will be of special and improved benefit to Everest Poker.

Traditional Asian games. Our unique platform of Asian games launched in the fall of last year and since then has grown double-digits, month-on-month. We have concluded, just recently, marketing partnerships with two major entertainment groups in Japan, and look forward to accelerated growth from these channels, beginning in the second quarter.

In addition, two new Pachi games will be launched in the second quarter. We continue to believe that traditional Asian games are a huge market opportunity, and we are building our business methodically, to become a major contributor, wrapping-up from this year into 2010 and beyond.

As with our build out originally of Everest Poker, we plan to release more and more operational metrics as our business develops. In summary, we look to deliver financial performance in line with our 2008 results for this division.

Turning now to our Asian online games division. The 2008 performance of our Asian online games unit, revenue up 39% and operating income up 16%, would be fine for some companies but, in truth, was a disappointment for us.

Our planned launch of several top games was delayed, due to development delays and missed deadlines on the part of some of our third party game providers. Nonetheless, the net result is an even stronger game pipeline for 2009, and into 2010, with potential megahits and explosive growth drivers for GigaMedia.

Let me just highlight our latest news and leave a fuller discussion to Thomas. We are excited to announce our licensing of Luna Online for our exclusive operation in China. Luna Online is currently one of the hottest games in Asia, with strong user numbers and, in some markets, revenue even matching that of World of Warcraft.

As acute styled MMO, Luna addresses the large, lucrative niche that looks for strong social interaction and charming Japanese enemy style characters in games. Luna's unique mix of social networking and matchmaking allows for greater character interactions and community building, making it a great fit for Asian gamers.

We are very excited about launching this game in China this summer, and expect it to target the market niche previously occupied by Ragnarok Online, one of the all time most popular games across Asia.

In summary, we are very confident that Luna and other strong games in our line-up will drive very strong top and bottom line growth in Asia, both for 2009 and beyond.

Before concluding, a word on potential mergers and acquisitions. With a view to maximizing shareholder value, we are now in discussions with several interested parties concerning the possibility of a strategic merger or a sale. We have retained a financial advisor. No further information is available at present.

If a merger or sale does not proceed, we will seek strategic acquisition targets, as well as consider joining poker liquidity with other operators and platforms. As a publicly listed firm with a strong balance sheet, we believe we have a good opportunity to make accretive acquisitions during the course of this challenging year.

In conclusion, despite difficult operating conditions, we remain confident in the strength of our business and the value of the online entertainment platform we are building.

For 2009, our accelerated growth in Asia, and careful management of Europe, point to another strong year for GigaMedia, with growing shareholder value as its cornerstone. We thank you for your interest and continued support.

With that, I'd like to hand the call over to Thomas.

Thanks, Arthur. And thank you all for joining us. Let me take you through our business and operational highlights now, starting with our gaming software business, and following with our Asian online games business.

Revenues from our gaming software business in the fourth quarter grew 3% year-on-year, composed of a 50% increase in casino revenues and a 10% in poker revenues.

The record casino results demonstrate continued success in leveraging our investments in the Everest brand.

In poker, results show the impact of strong headwinds; namely, the economic downturn in Europe, the depreciation of euro against the US dollar, and strong competition.

Given these factors that Arthur mentioned, we are acting decisively to make the business leaner and taking actions to ensure we will weather global macroeconomic challenges. Overall, the Everest brand and our market position remain solid.

Poker revenues in the fourth quarter held relatively steady quarter-on-quarter. During the fourth quarter, our poker platform had approximately 184,000 active real-money customers, up 4% from the previous quarter. During the quarter, we added approximately 44,000 new real-money poker players, up 15% quarter-over-quarter.

The poker business continues to attract a strong player base and remains a healthy business. However, player yields have been negatively affected by two factors. First, competition over players increased in 2008 with some sites using profit generated from customers in the United States to market to European players, and many operators joining poker networks to improve the liquidity they can offer. This has led to some increases in the number of players playing on multiple sites.

Second, it is clear from our Q4 results that the global economic crisis, and accompanying depreciation of the euro, has some effect on gamer spending. The net result of these factors has been a downturn in player yields and revenues.

Turning to casino, Casino revenues in the fourth quarter were, again, very strong, with continued success in cross-selling to Everest poker players offsetting market challenges. As we enhance integration between our poker and casino offerings, more and more Everest poker players are playing on Everest casino. We also plan to launch a suite of flash-based games, requiring no downloads, to further enhance player conversion.

Turning now to our Asian online games business, revenues decreased 5% year-on-year and 15% quarter-on-quarter, with both declines related to decreased fourth quarter contribution from our China game platform T2CN.

We experienced a temporary sharp drop in player activity in T2CN's game FreeStyle during the fourth quarter due to a hacking incident. This was resolved in December, and both player activity levels and revenues have rebound sharply.

For the fourth quarter, T2CN's average monthly active paying accounts were approximately 336,000, down 16% from the third quarter, and average monthly revenue per active paying account was $3.45 during the period, down 15% quarter-over-quarter. These declines were related to the aforementioned hacking incident.

Peak concurrent users of FreeStyle were approximately 111,000, a decrease of 6% from the third quarter.

FunTown's average monthly active paying accounts were approximately 102,000 during the fourth quarter, down 6% from the third quarter, and average monthly revenue per active paying account was $19.59 during the period, up 2% quarter-over-quarter.

Peak concurrent users were approximately 38,000, an 18% increase from the third quarter.

Overall, fourth quarter results of the Asian online games business were fundamentally sound, with effective cost control and good growth in operating income and net profit. However, these results are only hints at the strength of our platform and its growth potential. We have invested heavily in this business and are confident in our ability to deliver very strong growth, going forward.

Fourth quarter results did not include any new game launches, but we expect to offer new games in each quarter of 2009.

Looking ahead, we are very excited about the prospect of our new game pipeline. Let me now go over the key developments with regards to our new game titles; namely Holic, Warhammer Online, Luna Online, and NBA Street Online.

We successfully launched Holic in January 2009 in Taiwan. Peak concurrent users of Holic in February were approximately 12,000. We expect launch in China in the second half of 2009, following some additional game development by its developer Mgame.

Our next launch is EA's exciting new game Warhammer Online. Since its launch, EA has taken what was already a strong game and made it better. Most recently EA Mythic launch version 1.3 of the game in North America and Europe. As part of this, Warhammer gets two new character classes, a number of large event competitions, and other new content. The scope of this expansion is extensive.

We will begin limited closed beta testing of Warhammer Online version 1.3 in Taiwan in April, open beta in May, and look forward to an exciting commercial launch in June.

Next, as Arthur mentioned, we have just obtained exclusive China rights for Luna Online. Given Luna's success in other Asian markets, we expect is to be a major hit in China when it is launched in Q3 2009.

Finally, we also plan to launch another game title from EA this year, NBA Street Online. Sports game [are under] certain age in Asia, and basketball is one of the most popular sports in the region. Given this enormous market potential, the global appeal of EA's sports brand, and the excitement of NBA stars who appear in the game, we expect NBA Street Online to be a major hit in China and Taiwan.

EA has taken great care to finalize refinements to the game for Asian market. We expect that it will be ready for commercial launch in China and Taiwan by Q3/Q4 this year.

In summary, we continue to be very confident of our gaming software business, and excited about our Asian online games business.

In Europe, our strategy in 2009 is to continue to leverage the Everest brand and carefully manage cost. And in Asia, our proven ability to source top content and exciting pipeline for 2009 and our massive reach give us powerful assets to accelerate our growth strongly.

Thank you. That concludes my remarks. And I will now turn the call over to Quincy for a review of our financial performance.

Thanks, Thomas. May I now just take a few minutes to review our Q4 consolidated financial results. Following that, I will highlight some key factors affecting Q4 results in each of our core business units. There will then be an opportunity for you to ask questions.

Overall, fourth quarter was very challenging. Beginning with revenues, full year-over-year and quarter-over-quarter consolidated revenues were relatively stable, growing 1% year-over-year and declined 2% quarter-over-quarter to $44.6 million.

During both periods, small growth in our gaming software business was offset by revenue decreases in our Asian online games business. Revenue declines in the Asian online games business were related to a fourth quarter hacking incident in T2CN, which Thomas mentioned earlier.

Our gross profit margin in Q4 was 80.7%, which was steady quarter-over-quarter and down slightly from last year.

Our Q4 2008 consolidated operating income decreased year-over-year by 16% to $7.9 million and increased quarter-over-quarter, up 36%.

The year-over-year decrease was due to a decline in our operating margin to 17.7% from 21.3% a year ago. This reflects a margin decline in the gaming software business from amortization of expenses related to sponsorship of the World Series of Poker, as well as increases in general and administrative and product development and engineering expenses.

This more than offset an increase operating margin in our Asian online games business, where we have tightened cost controls and increased efficiencies.

The quarter-over-quarter increase in consolidated income from operations was, primarily, the result of a sequential consolidating operating margin increase in the Asian online games business, which more than offset the aforementioned margin decrease in the gaming software business.

Last quarter, certain non-cash charges in our Asian online games business resulted in negative incomes from operations in that business unit.

For more insight into our period results, let's look now at key line items details. On a year-over-year basis, we have lower G&A expenses and higher selling and marketing expenses, with product development expenses remaining flat.

Total G&A expenses decreased approximately by $648,000 or 30%, led by a strong [30%] reduction in the Asian online games business. The decline in G&A helped offset a year-over-year increase of approximately $1.4 million, or 7%, in total selling and marketing expenses. This increase was mainly due to amortization of expenses in our online poker software business for sponsorship of the World Series of Poker.

On a quarter-over-quarter basis, we had lower G&A expenses, as well as lower product and development expenses, with higher selling and marketing expenses.

Total G&A expenses decreased by approximately $1.2 million, or 22%, less [IA] [39%] reduction in our Asian online games business.

Total product development costs decreased by $1.4 million, or 35%, largely led to a 22% reduction in our gaming software business.

The quarterly sequential reduction in G&A and product and development and engineering expenses helped offset a quarter-over-quarter increase of about $3.3 million or [90%] in selling and marketing expenses, which relate again to the initial amortization expenses of the World Series of Poker.

Turning now to net income, net consolidated income declined 15% to $9.1 million from the fourth quarter of 2007, reflecting the period decline in operating income, and the net impact of a higher minority interest income, and the benefit of income from this continued operations.

Net income declined by 25% from the third quarter of 2008, as a result of a weaker performance in our gaming software business.

We continued to maintain a very strong balance sheet in the fourth quarter. Cash, cash equivalent, and current marketable securities at the end of Q4 were $99.4 million, with total debt decreased by $15.2 million, with quarter-over-quarter decrease in our cash position attributable to loan repayment of $14.3 million.

Overall, full-year 2008 results demonstrate our ability to deliver solid top and bottom line growth, while continuing to build a leading online entertainment company.

Revenue grew 25% to $190.4 million, led by a 22% growth in our gaming software business and 39% growth in our Asian online games business.

Gross profit margin remains solid at 81.5%. Consolidated operating income grew 2%, and operating margin was 20%, in line with our expectations. Net income grew 14% year-over-year to a record of $44.4 million.

In sum, we executed well, delivering a solid year, while continuing to invest heavily in and build out our core business. We faced tough operating environment and a number of delays in scaling up our business but, as a summary of our work, we expect much greater success going forward.

Next, let's look in greater detail at the performance of our core business units. Let's begin with gaming software business. Fourth quarter revenue grew 3% year-over-year. As expected, revenues were up 2% over the third quarter. In poker, revenues declined 10% year-over-year and held steadily quarter-over-quarter.

Offsetting this were outstanding performance of our casino software business. We continue to drive excellent growth here by cross-selling casino games with Everest poker play. Casino revenues were $11 million in the fourth quarter, up 50% year-over-year, and radically steady quarter-over-quarter.

As Thomas mentioned, we expect ongoing cross-selling initiatives to continue to drive user growth and strong performance.

Gross profit margin in Q4 was 83.3%, down from 87% in 2007 and steady quarter-over-quarter. The year-over-year decrease results from increased payments processing costs and depreciation of office equipment during the period.

Operating income in our gaming software business decreased 47% to $5.2 million year-over-year, and decreased 45% sequentially.

Operating margin decreased year-over-year to 14.7% to -- from 28.7% in 2007 and from 27% in the third quarter of 2008. The year-over-year decrease was primarily due to the increases in selling and marketing, G&A, and product development and engineering expenses.

The quarter-over-quarter decline in operating margin mainly reflects increased sales and marketing expenses, as we begin to record our amortization in the fourth quarter on the multi-year sponsorship of the World Series of Poker.

This increase, as well as increased G&A expenses during the period, more than offset decreased product development and engineering expenses. In sum, it was a challenging quarter for the poker business and another strong quarter for casino business.

We anticipate that the operating environment will continue to be challenging as the time for recovery of the global economy is uncertain, and market competition in online gaming continues to be strong, and we are taking actions to reduce our operating costs during these difficult times.

Let me turn to Asian online games business. Overall, results for the business were solid. Operating margin grew year-over-year and quarter-over-quarter, as did net income.

As Thomas told, revenues in the fourth quarter were negatively impacted by hacking incident in China of T2DN's game, FreeStyle, making year-over-year and quarter-over-quarter revenues comparison of the Asian online games business somewhat distorted.

Revenues in the Asian online games business declined 5% year-over-year and by 15% quarter-over-quarter.

Looking down revenues by business unit, revenues from T2CN, our China platform, declined 12% year-over-year to $3.5 million. On a sequential basis, revenue decreased 29% in Q4 from Q3. As Thomas mentioned, metrics for FreeStyle in the first quarter of 2009 have rebound sharply.

Revenues from FunTown, our Taiwan and Hong Kong online game platform, were steady year-over-year and quarter-over-quarter at $6 million, as we did not launch any major new games during the period.

Gross profit margin in Q4 was 71.4%, up slightly from 68% last year and comparable with 73.2% in the third quarter of 2008.

We are very pleased to report that the operating income jumped 167% from the same period last year, driven by a strong margin expansion to 34.2% from 12.1% in 2007. Margin expansion result from effective costs controls, with a 36% in sales and marketing and a 30% decrease in G&A expenses.

Quarter-over-quarter, operating income grew sharply from a loss of $2.4 million. As described in our announcement, third quarter results were distorted by several non-cash items. Excluding such items, to obtain a more meaningful comparison, operating income for Asian online games business grew approximately 100% quarter-over-quarter from $1.6 million and operating margin more than doubled from 14.6%.

Looking ahead, we expect the revenue to grow significantly in the first quarter and accelerate in 2009, as we begin to more fully elaborate our unique regional platform and launch some of the outstanding set of new games Thomas mentioned earlier, including Warhammer, Luna Online, and NBA Street Online.

In conclusion, in Q4, we faced strong operating challenges but we, again, delivered solid results. We continue to build and strengthen our business, and we are committed to control our operating costs in order to sustain momentum against economic (inaudible). Thank you.

Thank you, Quincy. We will now move into a question and answer session. So, operator, at this point, we would like to open the call up to questions.

Thank you very much, sir. Ladies and gentlemen, (Operator Instructions). Our first question comes from the line of Atul Bagga from ThinkEquity. Atul, you may proceed.

Morning. Thank you for taking my call. Arthur, can you give us some update on the proposed bill to legalize online gambling in the US, and how it may impact you guys?

Sure. Thanks, Atul. The fiscal crisis in the United States will certainly be an impetus for the repeal of the Prohibition Act that was passed a couple of years ago. It now looks like there will be two Bills moving through Congress and the list of supporters is continuing to grow.

At the same time, there is also movement in California for a State Bill to legalize poker in California. We believe that, as only United States written, born-and-breded, raised software, the only Sarbanes-Oxley compliant, the only US corporate governance compliant firm, that we will not only be the first in line to receive a US license, but also the first to receive actual US operating license.

Naturally, this is an enormous opportunity for us and, combined with our sponsorship of the World Series of Poker, we believe it represents a huge upside for our business.

And can you talk a little bit about what would be your strategy if and when US opens up, and how big an opportunity it could be?

And also, you talked about some consolidation opportunity that you might be working on. Is that something which hinges on this, or is that a part of your strategy for the US opening up online gambling?

Okay. We continue to look, at all times, for accretive, strategic M&A opportunities which will accelerate our business. The opportunities I mentioned during the call are not specifically related to opening in the United States.

Our strategy for the United States would be a very aggressive strategy. The market size of the United States is conservatively larger than the market in Europe, and is well developed, and a well known marketplace.

A lot of this marketplace actually began and developed because of the World Series of Poker, which has been going for many, many years and was the original source of the popularity of Texas Hold'em Poker. So, we believe that as the sole poker sponsor of the World Series of Poker, plus with our presence in the United States, our software developed in Cambridge, Massachusetts, and our knowledge of the US marketplace, is that we would be in a very, very strong position and compete very strongly.

Thanks, then. Switching gear. So you guys talk about -- as for your guidance and target for 2009, for Q1 you are expecting gaming software business to be down about 10% sequentially. And for the year you are expecting it flat year-over-year, which implies that in the next three quarters you could be doing about $37 million/$38 million per quarter. Do you expect this growth to be even in all the next three quarters?

I'm just trying to understand what are the catalysts that you're seeing, or what is giving you the confidence for this strong growth in the next three quarters of 2009?

Thomas, do you want to speak to this?

Sure. Atul, I think what we're expecting is the combination of all the initiatives on the revenue side. But also, more importantly, new to this call, we have announced that we have introduced the concept is on the cost side that will give us a financial performance in 2009 that is in line with 2008.

So, the cost side has a big part to do with it, as we have demonstrated even in Q4, whereby the seasonal rebound was not as strong as the previous year. Because of all the factors we mentioned, we were able to contain costs to deliver a satisfactory set of results in terms of bottom line. And that will be another key way for us to deliver the financial performance that we target ourselves to in the gaming software business for 2009.

It makes sense. And for these cost initiatives that you highlighted, so these will start to impacting from -- these will start to have some impact from Q3 onwards? Or is it also, can we expect to see some impact in Q2 as well?

Yes, definitely. The cost controls and cost-cutting measures, some of them begin to take effect right away, some in the middle, or some time during Q2.

Got you, okay. And the last question for you guys, so, for Q1 you guys guided gaming software business down 10% sequentially. A couple of your competitors, when they talk about performance in Q1, they highlighted the Q1 revenues' rebound in poker, can you talk a little bit about why that might be different for you guys?

Atul, we're not familiar with anyone giving aggressive guidance on Q1. We follow the market quite closely and believe that we are tracking almost directly in line with our competitors. So, it would surprise me, quite considerably, if anyone was going to be doing very much different.

There could be aberrations in certain markets. For example, maybe we have a vestige of bingo doing well in England, or a couple of anomalies here or there. But the general market position, I think, would not allow very much difference there.

Got you. Thank you.

(Operator Instructions). And our next question comes from the line of Adam Krejcikfrom Roth Capital Partners. Adam, you may proceed.

Thanks. Thanks for taking my question, guys. Going back to the full-year guidance on the real money business, and what Atul was referring to, does that include any revenue contribution from online sports betting, and also real money online games in Japan?

Yes, the full-year forecast does include contributions from both. Both are very, very small numbers and now almost immaterial at present. But wrapping-up, as we mentioned, with the traditional Asian gambling games, growing, doubling -- double-digits month-on-month growth, with the implementation of the common wallet and our improved platform cross-over features, we expect the -- it expects to also be an ever growing contributor.

Okay. So, I take it more in kind of the back half of the year versus in the first quarter '09?

Yes.

Okay. And then, in terms of operating margins, in the past you've always guided to about 20% to 25%; obviously, you're a little below that range in this fourth quarter. Do you think you can get back into that, I guess, long-term guidance range given some of these cost initiatives? And then, I guess, perhaps in the first quarter '09? And then also what your goal is for the full-year?

This is Quincy. Notwithstanding the challenging operating environment, I think, combined with the new initiatives and cost-cutting measures, we still are targeting to achieve an operating margin within 20% to 25%.

Okay. For the first quarter, or for the full-year, or just --?

I think it's more for the full-year picture because we have seasonal fluctuation. And also, bear in mind that in each quarter we have new games to be launched in the Asian games, and while the sales will pick up in sequential quarters. So, we have more upfront marketing expenses. So, we're looking in a 12-month to 24-month basis on this.

Okay. Thanks a lot, guys.

(Operator Instructions). And at this time we are showing no more questions available. Mr. Miller, you may proceed.

Thank you, operator. And thank you all again 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. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.