With acquisitions, GigaMedia singing a new tune

Internet service provider GigaMedia Ltd (和信超媒體) has finalized a NT$650 million deal to purchase two music chain stores.

The deal, announced yesterday, will give GigaMedia control of more than 50 percent of the domestic retail music market and significantly boost the company's sales.

"GigaMedia has focused on offering Web services, and now we are glad to announce our business has expanded into a new era -- music distribution in retail stores," Wayne Chen (陳維仁), company vice president, said yesterday.

The cash deal will put Rose Records (玫瑰唱片) and Ta-Chong Records (大眾唱片) under GigaMedia's subsidiary -- g-music Ltd -- which will oversee the two firms' 47 outlets.

Last year, music lovers purchased more than NT$5 billion in CDs and other items. Rose and Ta-Chong accounted for more than 50 percent of those sales.

Despite rampant piracy, Chen predicted sales for g-music will grow to nearly NT$3 billion this year. According to Winston Hsia (謝載祥), chief financial officer at GigaMedia, the company's sales for this year is estimated to hit NT$3.72 billion.

Of that amount, sales from GigaMedia's new business will account for 80 percent, while Internet connection services will contribute just 16 percent.

"In terms of revenue growth, we'll benefit more from selling music than our core business," Hsia said earlier this year when disclosing the company's 2001 financial report.

Last year, more than 90 percent of the company's revenue came from Internet connection fees, while the remainder came from paid content and online advertising.

GigaMedia reported a loss of US$0.73 over the last four quarters. Since listing on the NASDAQ in February 2000, the company's stock has dropped roughly 97 percent.

GigaMedia shares closed up at US$0.81 on Thursday.

"We believe by the third quarter of 2002, the company will be able to break even," Chen said.

"The management team always tries to generate the best value for our shareholders, and we believe this joint venture is a beneficial business strategy."

In addition, GigaMedia also hopes to get into the retail music business in China in the near future.

"By the end of this year, GigaMedia may set up several music outlets in China's major cities such as Shanghai and Beijing by linking up with local music chain stores," Chen said.

Although piracy in China remains a serious issue, Chen said GigaMedia must enter the market as early as possible.

"Of course, the investment won't be very significant over the next two years," Chen said, but "we have to make sure we can expand quickly once the market picks up."