GigaMedia Announces Fourth-Quarter and Full-Year 2010 Results

TAIPEI, May 4, 2011 /PRNewswire-Asia-FirstCall/ -- GigaMedia Limited (NASDAQ: GIGM) today announced full-year 2010 revenues of $64.7 million, net income of $2.7 million and fully-diluted earnings per share of $0.04.

Fourth-quarter 2010 revenues were $8.9 million; non-GAAP consolidated net loss was $8.8 million; non-GAAP basic and fully- diluted loss per share were each $0.16, which exclude results from discontinued operations, non-cash share-based compensation expenses, bad debt expense and certain other non-cash or one-time items.

"Fourth-quarter and full-year results were hurt by significant write-downs," stated GigaMedia Chief Executive Officer Yichin Lee. "We completely wrote-down our investment in T2CN; we also wrote- down investments in IAHGames on initially disappointing results related to Blizzard game initiatives."

"More encouragingly, we successfully launched new products at the end of the fourth quarter, including A.V.A. and a new web-based MahJong game," stated CEO Yichin Lee. "Looking ahead, we expect to deliver revenue growth from these games, as well as the launch of FIFA Online 2 in early 2011, and are strongly focused on turning around our financial performance."

Overview

In the fourth quarter of 2010, GigaMedia successfully launched the new game A.V.A. and a new Web-based MahJong game in Taiwan. GigaMedia completely wrote-down its investment in T2CN in the fourth quarter; management is continuing to pursue all means to regain control of T2CN. Management expects cost-cutting initiatives implemented in late 2010 to yield reductions in general and administrative expenses beginning in the first part of 2011. Management is reviewing the option of using excess cash to buy back stock, as well as the potential disposal of certain studio investments to realize gains and crystallize value on GigaMedia's balance sheet.

Consolidated Financial Results

GigaMedia Limited is a major provider of online entertainment software and services, developing and operating a suite of online games in Asia covering the regions of Greater China and Southeast Asia. GigaMedia also retains a 40 percent equity interest in gambling software business Everest Gaming ?now part of BetClic Everest.

For the Fourth Quarter

GIGAMEDIA 4Q10 CONSOLIDATED FINANCIAL RESULTS

(unaudited, all figures in US$ thousands, except per share Change amounts) 4Q10 4Q09 (%) Revenues (A) 8,903 40,255 -78 Gross Profit (A) 2,821 31,321 -91 Loss from Operations (A) (34,668) (41,952) NA Income (Loss) from Continuing Operations (A) (44,598) (58,059) NA Net Income (Loss) Attributable to GigaMedia (41,255) (51,685) NA Net Income (Loss) Per Share, Diluted (0.73) (0.95) NA Non-GAAP Loss from Operations (A)(B) (6,636) (2,044) NA Non- GAAP Net Loss (A) (B) (8,814) (2,280) NA Non-GAAP Net Loss Per Share, Diluted (A) (B) (0.16) (0.04) NA EBITDA (C) (40,347) (50,003) NA Cash, Cash Equivalents, Restricted Cash, and Marketable Securities- Current 79,541 59,985 33

(unaudited, all figures in US$ thousands, except per share Change amounts) 4Q10 3Q10 (%) Revenues (A) 8,903 7,831 14 Gross Profit (A) 2,821 4,262 -34 Loss from Operations (A) (34,668) (4,903) NA Income (Loss) from Continuing Operations 598) (A) (44, (9,775) NA Net Income (Loss) Attributable to GigaMedia (41,255) (9,960) NA Net Income (Loss) Per Share, Diluted (0.73) (0.18) NA Non-GAAP Loss from Operations (A)(B) (6,636) (4,328) NA Non- GAAP Net Loss (A) (B) (8,814) (9,420) NA Non-GAAP Net Loss Per Share, Diluted (A) (B) (0.16) (0.17) NA EBITDA (C) (40,347) (8,708) NA Cash, Cash Equivalents, Restricted Cash, and Marketable Securities- Current 79,541 94,420 -16

(A) Excludes results from discontinued operations; 4Q10 and 3Q10 figures exclude GigaMedia's China operations. (See, "Deconsolidation of T2CN operations," for more details.) (B) Non-GAAP income (loss) from operations, non-GAAP net income (loss) and non-GAAP net income (loss) per share exclude results from discontinued operations, non- cash share-based compensation expenses, bad debt expenses and certain non-cash or one-time items. (See, "Use of Non-GAAP Measures," for more details.) (C) EBITDA (earnings before interest, taxes, depreciation, and amortization) is provided as a supplement to results provided in accordance with U.S. generally accepted accounting principles ("GAAP"). (See, "Use of Non-GAAP Measures," for more details.)

Consolidated revenues for the fourth quarter decreased to $8.9 million from $40.3 million in the same period of 2009 and increased from $7.8 million in the third quarter of 2010. Year-over-year results decreased primarily as a result of the deconsolidation of the company's gambling software business, of which GigaMedia sold a majority interest in 2010. Quarter-over-quarter revenue growth resulted from improved contributions from GigaMedia's Asian online games business, led by growth in the company's subsidiary IAHGames.

Revenues in the company's Asian online games business in the fourth quarter of 2010 decreased 17 percent year-over-year and increased 14 percent compared with the third quarter. The decrease from the prior year was attributable to deconsolidation of T2CN's operations, which more than offset new contributions from IAHGames. (See "Deconsolidation of T2CN operations" for further details.) The increase from the third quarter of 2010 primarily resulted from revenue growth in IAHGames.

Fourth-quarter revenues for FunTown decreased to $5.5 million from $6.6 million a year ago and were up from $5.3 million in the third quarter of 2010. The year-period decrease and the quarterly sequential increase were mainly attributable to variations in contributions from MahJong and other casual games. Revenue contributions from A.V.A. were small during the fourth quarter as commercial operations began in December; contributions are expected to grow in the first quarter of 2011. Average monthly active paying accounts held steady at approximately 66,000 during the fourth quarter. Average monthly revenue per active paying account was approximately $27.70 during the fourth quarter of 2010, up 5 percent from the previous quarter. Fourth-quarter peak concurrent users were approximately 38,000, up 23 percent from the third quarter.

Fourth-quarter revenues for IAHGames were $3.4 million, up from $2.5 million in the third quarter of 2010. Revenue growth was driven by game box sales, which represented 53 percent of IAHGames' total fourth-quarter revenues. Online game revenues were 41 percent of total revenues during the fourth quarter, led by contributions from FIFA Online 2, Dragonica Online and Granado Espada.

Consolidated gross profit for the fourth quarter decreased to $2.8 million from $31.3 million in 2009 and $4.3 million in the third quarter of 2010, with the year-over-year decrease primarily resulting from the deconsolidation of the gambling software business and the quarterly sequential decrease attributable to a loss in IAHGames. Fourth-quarter 2010 consolidated gross profit margin decreased to 31.7 percent from 77.8 percent in the same period in the prior year, and decreased from 54.4 percent in the third quarter of 2010. The year-over-year decrease was related to the deconsolidation of gambling software business results. The decrease from the third quarter was due to lower gross margin in the Asian online games business mainly attributable to results in IAHGames.

Gross profit in the Asian online games business decreased to $2.8 million in the fourth quarter from $6.5 million a year ago and $4.3 million last quarter, attributable to revenue trends in each period and lower gross margin. Gross margin in the Asian online games business declined to 31.7 percent from 60.0 percent in 2009 and from 54.4 percent in the third quarter of 2010 with the period decreases primarily reflecting results in IAHGames.

Consolidated operating expenses for the fourth quarter decreased to $37.5 million from $73.3 million in the fourth quarter of 2009 and increased from $9.2 million in the third quarter of 2010.

Operating expenses in the Asian online games in the fourth quarter of 2010 were $33.1 million compared to $43.5 million in the prior year period and $4.8 million in the third quarter.

Product development and engineering expenses decreased to $549 thousand in the fourth quarter of 2010 from $3.8 million in the prior year due to deconsolidation of the gambling software business and held steady compared to $603 thousand in the third quarter of 2010.

Selling and marketing expenses decreased to $2.5 million in the fourth quarter from $23.4 million in 2009 and increased compared to $2.0 million in the third quarter of 2010. The year-over-year variation resulted from the deconsolidation of the gambling software business and T2CN. The quarterly sequential increase was attributable to promotion of A.V.A., which GigaMedia launched in December in Taiwan. General and administrative expenses were $6.7 million in the fourth quarter compared to $6.8 million in 2009 and $6.5 million in the third quarter of 2010. Corporate operating expenses increased to $4.1 million from $3.8 million quarter-over- quarter. The increase was primarily due to legal fees related to the company's business dispute in China. Fourth-quarter results do not reflect the impact of new cost cutting initiatives; management expects to achieve reductions in general and administrative costs beginning in early 2011 from controlling legal and other costs.

Fourth-quarter 2010 impairment losses and bad debt expenses totaled $27.7 million, primarily consisting of 1) a full impairment of and bad debt related to GigaMedia's T2CN operations totaling $23.6 million; and 2) impairments of certain prepaid game costs, intangible assets and goodwill totaling $3.4 million related to IAHGames.

Consolidated loss from operations for the fourth quarter increased to a loss of $34.7 million from a loss of $42.0 million in the fourth quarter of 2009 and increased from a loss of $4.9 million in the third quarter of 2010. The period variations primarily reflected the aforementioned factors affecting revenues and costs and expenses.

Loss from operations in the Asian online games business in the fourth quarter of 2010 was $30.3 million compared to a loss of $37.0 million in the prior year period and a loss of $555 thousand in the third quarter of 2010.

Non-GAAP consolidated loss from operations for the fourth quarter of 2010 increased to a loss of $6.6 million from a loss of $2.0 million in the fourth quarter of 2009 and from a loss of $4.3 million in the third quarter of 2010.

Non-GAAP consolidated loss from operations for the fourth quarter of 2010 excluded the following non-cash or one-time items recorded during the fourth quarter of 2010: (1) share-based compensation expenses of $379 thousand; and (2) the aforementioned impairment losses in GigaMedia's T2CN operations and IAHGames. (See, the attachment to this release entitled "Reconciliations of Non-GAAP Results of Operations" for more details.)

Consolidated non-operating income/loss during the fourth quarter of 2010 decreased to a loss of $9.4 million from a loss of $16.2 million in the fourth quarter of 2009 and increased from a loss of $4.8 million recorded in the third quarter of 2010. Results included the following related to IAHGames: 1) an impairment loss of $13.2 million recorded in equity method investments related to IAHGames online game initiatives with Blizzard partially offset by 2) a gain of $2.6 million related to a warrant issued in connection with IAHGames initiatives with Blizzard. Results also included the following related to Everest Gaming: 1) an equity loss of $3.4 million reflecting GigaMedia's remaining interest in the business, which more than offset 2) a favorable adjustment to the purchase price, net of transaction costs, of $3.3 million related to the sale of the gambling software business.

Consolidated net income/loss for the fourth quarter of 2010 decreased to a loss of $41.3 million from a loss of $51.7 million in the fourth quarter of 2009 and increased from a loss of $10.0 million in the third quarter of 2010. The period variations primarily reflected the aforementioned factors affecting income from operations and consolidated non-operating loss.

Non-GAAP consolidated net loss in the fourth quarter of 2010 was $8.8 million, compared to a non-GAAP net loss of $2.3 million in the same period last year and a non-GAAP net loss of $9.4 million in the third quarter of 2010. Non-GAAP basic and fully-diluted loss per share in the fourth quarter of 2010 were both $0.16.

Consolidated EBITDA for the fourth quarter of 2010 decreased to a loss of $40.3 million from a loss of approximately $50.0 million in the same period last year and increased from a loss of $8.7 million in the third quarter of 2010.

Cash and Strategic Investments

GigaMedia continued to maintain a solid balance sheet during the fourth quarter. Cash, cash equivalents, restricted cash, and marketable securities-current were $79.5 million, down from $94.4 million in the third quarter of 2010. The decrease reflected major cash outflow items, including payments of $7.8 million related to pre-paid game licensing and royalty costs, a one-time tax payment of $2.5 million related to the sale of the gambling software business, and repayment of short-term debt of $2.6 million. Total short-term borrowings were $12.4 million at the end of the fourth quarter of 2010 compared to $15.0 million for the prior quarter.

Marketable securities ?noncurrent plus investments, consisting of GigaMedia's strategic holdings in game studios, developers and other related entities and the company's remaining 40 percent interest in Everest Gaming, were $100.2 million in the fourth quarter, down from $113.6 million last quarter. The period decrease reflected fourth- quarter write-downs of investments in T2CN, and Blizzard-related products, as well as GigaMedia's equity loss in Everest Gaming, which offset appreciation in value of investments in certain game studios and developers.

Management is evaluating the potential disposal of certain game studio investments to realize gains and crystallize value on the company's balance sheet.

Management is also evaluating using excess cash to buy back stock.

Additional Information

The loss on equity method investments during the fourth quarter of 2010 reported in the consolidated financial statements attached hereto includes GigaMedia's 40 percent share of the gambling software business (Everest Gaming's) net loss for the fourth quarter of 2010.

In addition, GigaMedia is providing the following supplemental figures related to Everest Gaming's operations in order to facilitate investors' understanding of GigaMedia's results. All amounts were provided to GigaMedia by Everest Gaming's management and are unaudited.

During the fourth quarter of 2010, Everest Gaming reported to GigaMedia total revenues of $15.4 million, including poker revenues of $10.8 million, with approximately 146,000 active depositing players and 38,000 new depositing players. Everest Gaming also reported to GigaMedia total net loss of $8.6 million for the period.

For the Full Year 2010

GIGAMEDIA FY10 CONSOLIDATED FINANCIAL RESULTS

(all figures in US$ thousands, except per share amounts) FY10 (unaudited) FY09 (audited) Change (%) Revenues (A) 64,682 159,581 -59 Gross Profit (A) 43,569 122,694 -64 Income (Loss) from Operations (A) (47,696) (40,061) NA Net Income (Loss) Attributable to GigaMedia 2,650 (49,085) NA Net Income (Loss) Per Share, Diluted 0.04 (0.90) NA Non-GAAP Income from Operations (A) (B) (14,243) 2,462 NA Non-GAAP Net Income (A) (B) (25,083) 2,711 NA Non-GAAP Net Income Per Share, Diluted (A) (B) (0.45) 0.05 NA EBITDA (C) 13,644 (40,504) NA

(A) Excludes results from discontinued operations. (B) Non-GAAP income from operations, non-GAAP net income and non- GAAP net income per share exclude results from discontinued operations, non-cash share-based compensation expenses, bad debt expense, and certain other non-cash or one-time items. (See, "Use of Non-GAAP Measures," for more details.) (C) EBITDA (earnings before interest, taxes, depreciation, and amortization) is provided as a supplement to results provided in accordance with U.S. generally accepted accounting principles ("GAAP"). (See, "Use of Non-GAAP Measures," for more details.)

Consolidated revenues for 2010 decreased to $64.7 million from $159.6 million in 2009 primarily due to deconsolidation of the gambling software business. Revenues in the Asian online games business also decreased to $38.9 million in 2010 from $46.9 million in 2009, with FunTown revenues down during the period and deconsolidation of T2CN revenues from July 1, 2010 more than offsetting new contributions from IAHGames.

Consolidated gross profit for 2010 decreased to $43.6 million from $122.7 million in 2009 attributable to the aforementioned revenue declines and lower gross margin in the Asian online games businesses primarily resulting from deconsolidation of T2CN and consolidation of IAHGames in 2010. Consolidated gross profit margin declined to 67.4 percent in 2010 from 76.9 percent in 2009, reflecting the deconsolidation of the gambling software business and a lower gross margin in the Asian online games businesses during the period.

Consolidated income from operations for 2010 was a loss of $47.7 million compared to a loss of $40.1 million in 2009. The loss in 2010 included the previously detailed fourth-quarter impairment losses and bad debt, plus certain contract termination costs, which all together totaled $30.4 million, and the 2009 loss included non- cash write-downs that totaled approximately $39.2 million largely composed of impairment losses on capitalized software and licensed games costs and goodwill on online game investments in China and bad debt, which impacted operating income and distorted period comparisons.

Non-GAAP consolidated income from operations for 2010 excluded a number of non-cash or one-time items recorded during 2010, as previously detailed. (See, the attachment to this release entitled "Reconciliations of Non-GAAP Results of Operations" for more details.)

Non-GAAP consolidated loss from operations decreased to $14.2 million in 2010 from income of $2.5 million in 2009. The decrease in non-GAAP consolidated income from operations was primarily attributable to deconsolidation of the gambling software business and increased operating expenses in the Asian online games business in 2010. Consolidated net income for 2010 increased to $2.7 million from a loss of $49.1 million in 2009.

Non-GAAP consolidated net loss in 2010 was $25.1 million compared to net income of $2.7 million in 2009. Non-GAAP basic and fully- diluted loss per share in 2010 were each $0.45 compared to earnings per share of $0.05 in 2009.

Consolidated EBITDA for 2010 increased to $13.6 million from a loss of $40.5 million a year ago.

Business Outlook

The following forward-looking statements reflect GigaMedia's expectations as of May 5, 2011. Given potential changes in economic conditions and consumer spending, the evolving nature of gambling software, online games, and various other risk factors, including those discussed in the company's 2009 Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission as referenced below, actual results may differ materially.

In the first quarter of 2011, management anticipates a double- digit quarterly sequential increase in revenues and expects a quarterly sequential decrease in total operating expenses.