GigaMedia Ltd (GIGM) 2010 Q2 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 GigaMedia's quarterly financial results. At this time, all participants are in a listen-only mode. Following the formal presentation, instructions will be given for a question and answer session. (Operator instructions) As a reminder, this conference is being recorded today, the 26th of August, 2010.

I would now like to turn the call over -- the conference over to Mr. Brad Miller. Please go ahead, sir.

Thank you. This is Brad Miller, Investor Relations Director of GigaMedia. Welcome to our conference call to discuss GigaMedia's second quarter 2010 financial results.

On behalf of the Company, I want to apologize for the delay in getting started today. We had some technical difficulties in getting the release scanned and onto the wires.

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 US Securities and Exchange Commission in June, 2010.

This presentation is being made on August 26, 2010. 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 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 now to Arthur, our CEO.

Thank you, Brad. Thank you all for joining us today. I'd like to take you through an overview of our business to explain what we're working on, and how we are thinking about our business. Let me turn first to look at our Gambling Software unit.

I'd like to begin with a little history to provide context for those who are new to our Company. Others of you who may be familiar with this, I ask for your forbearance.

For the last six years, our Gambling Software unit has been our largest and fastest growing division. Beginning with our acquisition of the business in April 2004, for a grand total of $32.5 million, we have enjoyed strong double digit growth nearly every quarter, until the European slowdown in 2009. Our Everest Poker product grew to be the fourth largest poker site in the world, where it remains today. And Everest Poker was awarded Best Poker Operator for two consecutive years by the independent industry journal eGaming Review.

Last year, we saw both an opportunity and the need to take our business to the next level by finding a European partner. After much consideration and research, including much assistance from our financial advisor at Goldman Sachs, we decided to take this major step by joining in a strategic alliance with Mangas Gaming, one of the leaders in European online gambling, whose operations include BetClic, Expekt, and Bet-at-Home, together offering sports betting, poker and casino services to over 4 million registered users in over 25 countries.

By joining our Everest Poker business with Mangas Gaming, we have created one of Europe's largest and best gaming platforms, with the size and scale to claim dominant market positions in Europe. Moreover, Mangas Gaming also brings the unmatched credibility, reputation and trust of the famed Monte Carlo Casino, backed by the government of Monaco itself.

And now, the first fruits of this partnership. In France, which recently adopted a new and liberalized regulatory structure for online poker and sports betting, Everest Poker and BetClic poker secured operating licenses in the first grant of licenses, and in late June, launched commercial operations. I am happy to report that in the short time since launch, we have enjoyed a strong market response, and now are tied for the number one position in France with a single competitor.

I also note that the summer season is our slowest period, as many players are away on holiday in France. In light of this, we have yet to turn on our major marketing campaigns.

We are also happy to announce a special partnership in France with French TV network M6, the best network in France for our business. The M6 partnership will include a wide range of special poker programming and other joint promotions.

We are also pleased to become the jersey sponsor of the Lyon Football Club, one of the most popular in France. More marketing partnerships are in the works, and will be announced soon.

The year 2010 is very much a transition year for our Gambling Software business, both from a merger and integration perspective between Everest and Mangas, and from a regulatory perspective, where we have needed to invest heavily to modify our software to meet the very demanding and exacting specifications of the new French regulators.

Now that both the merger integration and the French regulatory integration are mostly completed, and as the European macroeconomic situation improves, we look forward to a solid second half of 2010, fourth quarter in particular, and a strong 2011, driven by our early market success and number one position, as well as the launch of our marketing campaigns.

Beginning this fall, the poker market in France is expected to grow dramatically, with several analysts estimating a market size for poker alone of over $400 million in 2011. We expect to capture a market leader share of this large market.

Outside of France, we have many growth initiatives to capitalize on our partnership with the Mangas Group. We plan to integrate the BetClic player base with Everest this fall, and the Expekt and Bet-at-Home players next year. We are also exploring bringing our online games, all play-for-fun, to Europe in coordination with Mangas, and to drive traffic to our gambling sites. Likewise, we are in discussions as to how we can help Mangas expand into our home territories in Asia.

And, as we have mentioned before, we are following carefully and with some optimism the developments in the Italian and US markets. The United States in particular, we believe we have a special advantage, as our Everest team is based in Boston, and because of our clean past, which has never run afoul of US law.

We are pleased with the continued momentum in the United States courts, a legalized and regulated online poker market, and excited about the potential market opportunity which awaits.

In summary, together with Mangas, we believe our Everest poker business has an opportunity to win dominant market share positions across Europe, thereby delivering the strongest of financial results. We believe Everest Poker will continue to be a highly important and valuable growth driver for GigaMedia shareholders for many years to come.

Turning now to the Asian Games business, the year 2010 is also a building and transition year for our Asian online games. Let me begin with Southeast Asia, where we have increased our investment and stake in Southeast Asian game platform IAHGames. By way of background, IAHGames is the leading game publisher, operator and distributor based in Singapore, with over 35 million registered users in Southeast Asia. We are especially enthusiastic about Southeast Asia, because we believe it is a huge and fast growing market opportunity, similar to China in the online game market several years ago.

With EA's FIFA Online game addressing soccer and football lovers, and now Blizzard's StarCraft II, we believe IAHGames is best positioned to capture the hearts, minds and dollars of Southeast Asian gamers.

Led by IAHGames, Southeast Asia will be a major area of growth and expansion for GigaMedia. Our first step was the partnership with Blizzard Entertainment for Southeast Asia, and our launch of the amazing StarCraft II game on July 27. Player response in Southeast Asia has been great, and we are excited about the prospects for this watershed game over the next few years.

We also look to accelerate strong organic growth by a strong focus on strategic M&A in Southeast Asia. In China, Taiwan and Hong Kong, certain of our business units have, for various reasons, underperformed, and failed to deliver to the growth we have expected. In this area, let me just say that we are hard at work reworking, retooling, rebuilding these operations. We will continue to strengthen our operational and execution abilities wherever necessary.

At the same time, we are working on the operational level. We continue to invest in the content pipeline to feed our game platform. To date, we have investments in 18 studios, and look forward to bring the best of their products to our players beginning next year. Our investments in both platform and pipeline will allow us to have high quality content tailored for our operating markets, responsive to the continuing changes on our market and player preferences.

Finally, we are looking to strengthen our management team in our online games business, bringing in additional top talent with proven track records. I hope to be back to you soon with further news on this.

In conclusion, during the first half of 2010, we have successfully completed a major strategic transition for our Gambling Software business that we believe positions us strongly for strong growth in Europe. At the same time, we've continued to build and invest in our online game business, with an eye to building a platform and pipeline of unmatched quality.

While 2010 is a year of transition, a year of building, we believe our strategic position is strong, and that our many investments in our game pipeline and platform will soon bear fruit, and drive an exciting 2011.

We remain committed to building a stronger GigaMedia, with growing shareholder value as its cornerstone. We thank you for your interest and continued support.

I'll now turn the call over to Thomas, our President and COO.

Thanks, Arthur, and thank you all for joining us. As Arthur mentioned, during the second quarter, we continued our business transition. The new Mangas Everest took major steps forward in France. At the same time, we continued taking strong actions to expand our online game business in Asia.

There are a number of new initiatives underway, and we have quite a few operational updates to share with you today. Let me now highlight some of these in a review of our Gambling Software and our Asian Online Games business.

First, in the Gambling Software business, following the sale of a majority interest in our Everest business to Mangas in April of this quarter, we worked closely with our new partner in Q2 2010 to ensure a smooth transfer of ownership and a seamless integration with Mangas' other online gambling properties.

The new Mangas Everest is off to a very good, strong start. Mangas Everest has successfully leveraged its strong strategic position in the French market, and proven to be a powerful force, immediately capturing one of the leading market positions.

Initial poker results in the French online market have been very encouraging, despite strong competition and the negative impact of the traditionally slow summer season and the highly popular World Cup, as well as the limited marketing efforts.

Operational focus in Q2 2010 was on preparing for launch in the French market, as well as integrating with French players on [their] play. In addition, as Arthur mentioned, to drive growth in France, Everest Poker entered into a partnership arrangement with the powerful French media group M6. The partnership with M6 includes poker programs broadcast on TV, and a strong integration of all websites of the group with the creation of Everest poker pages.

In sum, we continue to believe that this business has significant upside potential for GigaMedia due to the following reasons.

First, newly regulated European markets have enormous potential, as demonstrated by the powerful growth in the Italian online poker market, and our recent experience in France. And we believe the trend of liberalization and regulation will continue in the European online gambling market.

Second, Mangas is proving to be an excellent partner, and we expect to see continued benefit to the business by the leveraging of Mangas and its shareholders' local know-how, expertise, complementary products, customer base, and world class strength.

Third, the economic downturn in Europe continues, but at some point will abate, lifting player span and overall player numbers in the European markets.

Fourth, the US market potential is enormous, and recent efforts by the US Congress to regulate the industry are encouraging. Everest's clean record positions the business to take advantage of any future opportunities in this large market.

And finally, we see significant financial upside potential from the true-up mechanism for the 60% stake we already sold, and a put-call arrangement for the remaining 40% stake we have retained in Mangas Everest.

In our Asian Online Game business, we have several key initiatives to share with you. First, in Southeast Asia, we completed our acquisition of IAHGames, and have begun consolidating this new subsidiary since July 2010. Furthermore, on July 27, 2010, IAHGames has successfully launched StarCraft II, the highly anticipated title from Blizzard, in our core Southeast Asia markets; namely Malaysia, Thailand, the Philippines, Singapore, Indonesia, and the regions of Hong Kong and Macau.

As detailed in Blizzard's announcement of August 3, 2010, response to the launch of StarCraft II has been overwhelming, with day one sales of more than 1 million copies sold worldwide, making it the best selling PC game of 2010 within its first 24 hours' availability, and more than 1.5 million copies were sold in the first 48 hours, making StarCraft II the fastest-selling strategy game of all time.

Complementing this, IAHGames has also begun distributing in Southeast Asia other box products from Blizzard, including the best-selling Diablo action role playing game series, its Warcraft and StarCraft real time strategy game series, and its World of Warcraft and its two expansion sets, The Burning Crusade, and Wrath of the Lich King.

[Legal will] will prevent us from sharing with you specific on game sales at this stage, but we are very excited by the initial results. There together with Blizzard, we are creating the region's premier online gaming destination. While it is simply too soon to provide detailed guidance for this business, we are encouraged by early momentum and look forward to sharing more in details with you in Q3.

Next, let me review our game operations in China. Our game revenues in China grew in Q2 both year-on-year and Q-on-Q, driven by our basketball game FreeStyle. During the quarter, we had a successful online tournament for FreeStyle, and also implemented new anti-hacking software that proved effective.

Lastly, Taiwan and Hong Kong. Our online game operation in Taiwan and Hong Kong faced strong challenges in Q2 in the casual games segments. New trends in casual player behavior and competitions are emerging, driven largely by the rapid rise of social networking sites. Online social games, particularly those offered on Facebook, are rapidly gaining popularity among like users. We are closely monitoring these trends, and plan to launch our own module application on the Facebook platform in Q4 of this year.

Looking ahead at our game pipeline in Taiwan, as mentioned in our last earning release, we have secured exclusive Taiwan rights to AVA, an exciting first person shooter game distributed by Neowiz. We expect AVA to begin commercial services in the fourth quarter of 2010.

To conclude, we remain committed to building a leading Asian online game business. We expect to drive growth both organically and via acquisition, and more than ever before, we have the resources and financial flexibility necessary to expand our business regionally in Asia.

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

Thank you, Thomas. I would like to take a few minutes to try to provide some insight into our Q2 financial results. Financial results in the quarter were significantly impacted by the deconsolidation of the Gambling Software business and certain one-off items, which I will review later.

On the revenue side, as a result of the deconsolidation, total Q2 revenues declined to $10.9 million. Total revenues were composed entirely of revenues from our Asian Online Game business, which decreased 7% year over year and 4% compared with the first quarter. We generate 54% of our revenue from business in Taiwan and Hong Kong, with the remaining 46% in China.

Revenues from online games in China increased both year over year and quarter over quarter. Growth was driven by FreeStyle promotions and the improved anti-hacking software. Offsetting this, revenue from online games operation in Taiwan and Hong Kong decreased year over year and quarter over quarter, with the decrease due to fewer active paying accounts and a quarterly sequential decrease due to lower player bets.

Gross profit was $7.2 million in Q2, all from Asian Online Games. Asian Online Games' gross profit margin in Q2 improved to 67% from 65% in 2009, and 66% in the first quarter, as a result of those licensed game costs.

On the operating expense side, as a result of the deconsolidation of the Gambling Software business, operating expenses increased by 34% year over year, and by 26% quarter over quarter to $19 million.

There were several key one-off expenses in Q2, totaling $10.1 million, and I will explain in detail. First, there was a $5.6 million increase in compensation costs, mainly attributable to the disposal of the Gambling Software business. Secondly, there was $2.7 million on termination costs and writedowns related to online game initiatives. And thirdly, about $1.6 million front load expenses related to development of SpongeBob project game title.

I think, taking into consideration of these factors, the adjusted operating expenses in Q2 have a more normal level were about $6.9 million. The operating expenses in the Gambling Software business in Q2 was $2.6 million, which was mainly related to G&A expenses, reflecting management involvement in the transition of ownership. But we expect to record all operating expenses in this segment going forward, in line with our reduced level of involvement with the new Mangas Everest as a 40% minority shareholder.

Operating expenses for Asian Online Games business were $10.3 million, up from $7.5 million a year ago, and up from $5.4 million last quarter. This was attributable to the $2.7 million in contract termination and write-off, and also a $1.6 million [developing] cost relating to SpongeBob project I just previous mentioned.

We record an operating loss of $11.8 million in Q2. If we exclude the one-off items totaling $10.1 million I mentioned about, the adjusted operating loss was about $1.7 million.

Consolidated operating income during the period was [$70.6] million, which was way up from the $0.2 million in second quarter last year, and a loss of $17,000 in the first quarter. This [huge] income comprises of three key items. The first one, the gain on the deconsolidation of the Gambling Software business of approximately $75.6 million, which consists of both the disposal gain on the sale of the 60% interest, as well as the gain relating to the fair share value of our remaining 40% holding. There were about $6.1 million [ex-trans] related to this gain, but is reported under the tax expenses in a separate line.

Secondly, there was loss on equity [method] investments of about $719,000, mainly related to our -- in our interest in the Gambling Software business. And thirdly, there was impairment on online game investments amounting to $4.7 million.

As a result of the above, we record a net income of $52.5 million in Q2.

Finally, let's take a look at our balance sheet. Our net cash position increased by $63 million to $103 million at the end of Q2 as a result of the net proceeds from disposal of the 60% of the Gambling Software business, and payments related to our investment in IAH.

[Fourth], the sale of the Gambling Software business, we are sharply focused on managing our cost structure, through the new initiatives to drive revenue and profitability, as well as increase in shareholder value.

Our costs and expense levels will remain high, relative to our revenue, as we continue expanding platform and [rebuilding] pipeline. However, we are well positioned for growth and expansion and have sufficient financial resources to grow our business through M&A initiatives on top of our organic growth initiatives.

Thank you. I will pass to Brad [for the Q&A session].

Thanks very much, Quincy. We will now move into a question and answer session. Operator, at this point, we would like to open the call up to questions.

(Operator instructions) And your first question comes from the line of Atul Bagga from ThinkEquity. Please proceed.

Hey, guys. Thanks for taking my questions. I have a couple of questions on the pipeline for Asian Online business. If I recall, you guys had invested in XL Games. And I understand that game from XL, Arche Age, is probably pretty much in the final stages of development.

Your investment in XL Games, I was wondering if you can share how much investment you have in that, and does it guarantee you that you will have the publishing rights for China and Asia?

Thomas, would you like to speak to this?

Sure, Atul. We have not disclosed the dollar amount we have invested in XL. You know, it's consistent with our -- some of the other investments we have talked about before. It's a minority investment, but we have strategic rights to it.

I can say that we are in discussion with them, very final stages of operating their games for the Taiwan region.

Not for China?

Not at this stage.

Got you. OK, and --

Maybe I can just add on there, first of all, we're very proud to be the only outside money in XL, and this is an investment which every indicator so far suggests that this is going to be a huge home run, this investment. We, again, are very honored to be with them.

The game that they are releasing, Arche Age, is going to be a -- we think a very big hit in Asia, and again, we are looking for Taiwan, Hong Kong, and Southeast Asia. China, we will probably not -- it looks like we're not going to take the game for China, and -- but we're happy with our operating the game in the jurisdictions I mentioned.

Got you. And if I understand, I heard, and I was wondering if you can clarify this. So I heard that in China, GigaMedia is starting another publishing unit in addition to GiGa.cn. Is that correct? And if that is so, can you help us understand the rationale behind that?

Okay. We are continuing to invest in different game developers and different operating teams. The ultimate plan, however, is not to have duplicative or competing platforms, but to have single operating platforms fed by a wide variety of game developers and content pipelines. So, that's ultimately what you'll see.

For various reasons, we may seek to use M&A or other means to expand the breadth and depth of our platform, and so we are definitely considering acquisition of other platforms or the joining of different platforms together.

Okay. And can you talk about the pipeline for China?

We have not -- we have several very exciting games planned, and they are in both our core areas, which, as you know, we like the sports vertical. We feel that online sports games continue to be an underserved and underrepresented area in China. We have some special opportunities and are in some discussions with the best people to be in discussions with on this, and we'll be happy to speak of those very soon.

So we have a very full lineup for our games for next year, but I think it's a little bit early for us to announce the [distributed] games.

Got you. And for IAH, can you talk about the scale of operation -- I think, some of the reports mentioned last year, it was about $10 million, $15 million in revenue with the Blizzard partnership. Can you help us understand a little bit better the partnership with Blizzard? Is it just for selling the box product, or is it also operations of StarCraft II and selling the time card from StarCraft II? And how big [upscale is that], how big a growth driver is the Blizzard partnership for IAH?

Thomas?

Sure. Yes, the partnership, first of all, is -- with Blizzard, composed of first, as you pointed out, selling of all the box products in Southeast Asia as part of -- and also, second part, which is more exciting than just the box product is basically using StarCraft II as the first product, but also launch [original] games on the Battle.net network, which they're exclusively building for Southeast Asia. So there's a specific, special Battle.net for Southeast Asia, not the US one.

Now, the StarCraft II boxes we sold in Southeast Asia will get onto this Battle.net, and we will also look to launch a subscription model of the StarCraft II games on the Battle.net in the next few quarters. And as they roll out future games, you will all -- as you know, you will all go onto the Battle.net platform. So that's basically the nature of the partnership, Atul.

Now, in terms of size, we -- you know, we unfortunately are unable to talk about the initial results we have seen, which are very encouraging, from the initial box sales of StarCraft II. We believe, based on the numbers we have seen, this could be a significant, significant contributor to our entire Asian online game business.

Got you. And just to clarify, so Battle.net, do you guys have the operational right for that? And does that mean World of Warcraft console will come under IAH?

We --

When you say World of Warcraft, you mean -- you know, there is no -- obviously, there's no special instance and service of World of Warcraft in Southeast Asia yet, okay? Right now, the Southeast Asian players, most of them actually log onto the US site. We already have the rights and we are distributing the boxes and the game cards for those users to play the US site. And we are in active discussion with Blizzard to launch Southeast Asian service, located in Southeast Asia for this business, but that is not finalized yet.

Got you. And then, now --

That would -- that's something we would be very excited about, and we hope to have good news on -- after we -- StarCraft's just been launched, really, less than a month now, so we're a little premature to be looking at the next game quite yet, but suffice it to say, that would be very, very exciting news for us.

Understand. And can you also help us understand the margin on this business? How does that compare with FunTown and T2CN?

Again, you know, I am a little hesitant, because right now, obviously, we are not able to discuss the top line based on sort of the restrictions we have. But we believe when it reaches the scale of this, it will be the normal margin ranges you see for a licensing business.

Understand. And last question, on the remaining 40% stake in your Gambling unit, how would you determine the valuation of that?

The valuation would be determined -- okay, first of all, let's talk about the rights there. As part of the strategic partnership with Mangas, we have an arrangement with them on -- we basically enjoy a certain put-call arrangement on each other. And the value of those -- the date of these put-calls are very long dated. This is designed to capture the future upside of the business. And each party has certain rights in terms of when to choose to exercise this right, and we believe, because of this flexibility, it can give us the time allowed for the business to fully enjoy the upside from the European markets for all the factors both Arthur and I have mentioned in our prepared remarks.

Now, and -- in terms of monetizing that business on the 40%, the valuation will be determined on a fair market value basis. There is a mechanism which involves a third party investment valuation expert, such as investment banks, that will come in and value the business at the point of exercise of such put-call options. But the important thing is, it will be a fair market value based on the then-performance of the business, and the market valuation at that point of time.

[Well], thank you.

Thank you.

(Operator instructions) And your next question comes from the line of [Aris Carrod] from mCAPITAL. Please proceed. Aris, your line is open.

Hey, guys. Good evening -- great quarter. Just had a couple of quick questions. I was hoping maybe you could talk a little bit about -- I think you mentioned, on the recent developments that there's a dispute with the [foreman] China had. I was hoping you could talk about that, and the impact on business.

Oh, sure. This is Arthur. This is a matter that we have sort of before the legal process now, so probably a limited amount I should say. But it's an employee dispute. We wanted to reach up [full] management and get some more effectiveness. We apparently have displeasured one of our former managers in the process. We think his manner of expression of this is quite ridiculous, and we are entirely confident that the legal process will bring this about in a -- bring about a resolution of this. So, maybe I should just leave it at that for now.

Okay. And on StarCraft II, maybe just some further color on how you think about that business over the next couple of years. From what I understand, I think there will be -- they are going to be coming out with several re-releases of, I think it's a trilogy. I was hoping you could comment on that, and show me the impact on the revenue for IAH over the next two to three years, and how you see that opportunity.

Okay, maybe I'll start, and Thomas, if you want to fill in? This is a game which is truly historic. There are literally tens of millions of people who still play StarCraft I, or did so until StarCraft II came out, and it's been a part of our -- it's going to be part of our worldwide culture now. It is truly a seminal product, and this sequel has been about a decade in the making.

And as you say, it has three elements or three installments to it, and the first was released just less than a month ago. And as we had hoped and expected, response from users worldwide has just been enormous and tremendous. And again, 1.5 million boxes sold -- not a cheap price, either -- in 48 hours. So it really, literally, flew off the shelves.

We think of this as a franchise deal. We consider the partnership with Blizzard to be a tier one, AAA -- AAA importance. We have worked hard to win their trust, to earn the right to be their partner, and are entirely committed to making sure that it's a great partnership.

The decision of Blizzard to set up Battle.net and have us run it in Southeast Asia is a major strategic move by Blizzard. It contemplates -- I think the decision to set up the Battle.net contemplates not just one product, but a whole family of products to run through Battle.net, and so naturally, we are very excited about what this can mean, what this can lead to.

So this one product is an amazing product, truly a seminal product, but it itself is actually only one of a whole series of amazing products that Blizzard has, and we're excited to have the opportunity to work with them on these.

Okay, great. Thanks a lot. Great quarter, guys.

Thank you.

(Operator instructions) And your next question comes from the line of [Qu Chang] from [Sensa] Capital. Please proceed.

Yes, good evening, Arthur, Tom and Quince. Hello?

Hey, good evening, Chang.

Yes. You mentioned in the guidance part, you know, higher costs on the IAH part, and also higher costs in France for the launch of the operations there. Can you give us some more color as, you know, going forward, how much they are talking in terms of expenses are?

Is your question relating to going forward the G&A of operating expense level?

Right, right.

Okay. As I -- in my remarks, the Q2 normalized adjusted operating expenses is around $9 million. So I think the factor is, we've got to consolidate the IAH in Q3. So the operating expense level will add into our Group. So we expect that to increase in the region of around $2 million to $3 million per quarter, but of course, it depends the level of selling and marketing expenses in line with certain launch -- the launch of certain games, yes.

The [revenue side], we cannot share too much at this moment, but I think it will be back to after Q3, we can share some solid numbers in Q3, and I think more importantly is the result after several quarters, once these new games have been launched.

Okay, $2 million to $3 million per quarter, that's only the -- that's the operating expense for the IAH part, right?

Yes, per quarter. That is our expectation.

Okay. What about the -- you mentioned also the startup costs for operations in France.

Yes. This will be the startup costs, Chang, here will be primarily related to the marketing event that is going to unfold in the next few quarters. And in fact, starting from September, when the French return from their holidays.

So this part, we will have to monitor the market response and the pickup rate, and it adjusts obviously according to how well and how badly we do. And we hope to spend a lot, because we hope to get a lot of people. So this part will be harder to provide a solid guidance at this stage.

Okay. Okay. And also, can you remind me, for the IAH ownership, how much ownership we are, we have?

We have a majority controlling stake. We have 80% of the voting control.

And what about the economic right?

We own the [boarding] controls in two tranches, part of which -- actually, we could actually transfer all of this into economic ownership. We will do so probably in the next few quarters.

Okay. Okay, so you initially -- we have a lower economic interest, and then gradually going to 80%?

Yes.

And even initially, we are over 50%, which means in terms of the reporting, will we have all of their numbers in, right?

Well, that -- we will have -- as I mentioned in my prepared remarks, we began -- we actually have begun consolidating this entity from July 1. So all their revenue and expenses will be in our operating -- sorry, will be in our consolidated financials.

Okay. Okay, great. Thanks.

Thanks [a lot].

There are no more questions in the queue, and I would now like to turn the conference over to Mr. Brad Miller for closing remarks.

Thank you 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. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.