Sat, Mar 16, 2002 - Page 17 News List

Industry analysts say GigaMedia is far too optimistic

A CHALLENGE The ISP company says that it will break even by the second quarter, but experts think that it cannot make a profit in the short term

By Annabel Lue  /  STAFF REPORTER

Analysts shot down GigaMedia Ltd's (和信超媒體) upbeat outlook yesterday, saying the Internet service provider's (ISP) claim they will break even by the second quarter of this year is unlikely.

"By June 2002, our company will be able to break even," said Winston Hsia (謝載祥), chief financial officer at GigaMedia.

GigaMedia, an ISP which listed on the NASDAQ in February 2000, disclosed its 2001 financial report yesterday, which showed revenue for the year totaling NT$428.7 million, up 20 percent from a year ago.

GigaMedia's earning per share (EPS) in 2001 is about minus NT$6 and its stock has lost about 97 percent of its value on the NASDAQ.

Late last year, the venture encountered a widening loss after it took an NT$427.8 million expense for the MicroSoft warrant.

Based on that figure and market expectations, industry analysts said it's hard for them to make profit in the short term.

"They are overly optimistic," said Nathan Lin (林宗賢), a market watcher at National Securities Corp (建宏證券).

Adding that since the Internet service price war is tougher this year and the cost of Internet bandwidth is still sky-high, it's impossible for GigaMedia to make profit in this sector.

Agreeing with Lin, another pundit said that to break even in the second quarter will be very challenging for GigaMedia.

"Unless they find a new revenue driver, they won't be able to make a profit," said Yen Ming-chi (顏銘志), an analyst at KGI Securities Corp (中信證券).

In 2001, more than 90 percent of the company's revenue come from Internet connection fees, only 10 percent came from paid content and online advertising, GigaMedia's Hsia said.

GigaMedia yesterday also announced they have decided to acquire two local music chain stores -- Rose Records (玫瑰唱片) and Ta-Chong Records (大眾唱片).

"Through the acquisition we will control over 55 music outlets or 50 percent of the retail music market around the island," said the company's CEO Raymond Chang (張瑞展).

The deal will be finalized in April and GigaMedia will hold a 61 percent share of the joint venture.

According to Hsia, the new business is expected to generate NT$3 billion in sales in 2002, accounting for 80 percent of GigaMedia's total sales this year.

"Therefore, in terms of revenue, selling music will benefit us more than our core business -- Internet services," Hsia said.

Adding that GigaMedia plans to develop both the Internet and non-Internet businesses in the future.

Chang said that the synergy is obvious, as customers can register for GigaMedia's service at music store counters and some of the music content will be able to broadcast via GigaMedia's Web site.

However, the analyst said the real purpose is to act as a counterbalance to the red ink.

"GigaMedia tries to balance its negative figure via buying profitable ventures," said KGI Securities' Yen.

Yen explained, if what GigaMedia is really looking for is synergy, they can get it by forming an alliance, not through acquisitions.

"But acquisitions may be a faster way to end the losses," Yen said.

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