GigaMedia Reports Third-Quarter 2011 Financial Results

Third-quarter 2011 core net loss was $3.9 million; core basic and fully-diluted loss per share were each $0.07. (Note 1)

"We experienced a challenging environment during the third quarter with low levels of customer activity in our casual games and strong competition," stated GigaMedia Limited Chief Executive Officer Yichin Lee. "Weaknesses are clear: our offerings are not broad or deep enough and our business unit operations are not efficient. As a result, our financial performance continues to suffer."

"We are making incremental improvements but need to restructure to respond to an ongoing, dramatic shift in online gaming from PCs to mobile devices," added CEO Yichin Lee. "As a third-party publisher, we are at a competitive disadvantage in today's environment where the risks for major games are higher than ever and speed and flexibility are critical. In sum, our strategy as a publisher is not working."

"Starting in the fourth quarter we will change course," added CEO Yichin Lee. "We will build a more complete online games business with a broader and deeper portfolio supported by specific development capabilities for different game genres. We will also extend our platform to mobile devices. The partnership announced today with Mark Jacob's team is a major breakthrough in this area. We believe this approach will both allow us to better compete and lower our risk."

"We will also restructure our business portfolio, adding growth initiatives in new areas of the media value chain," stated CEO Yichin Lee. "New offline initiatives will be added to deepen our customer connections and lower our risk profile."

'In short, going forward we will create a business that is more easily planned and managed and a business model that we can better control and leverage," stated CEO Yichin Lee. "We have a lot of work ahead of us, but we are convinced our strategy will provide us with substantial opportunities for growth, stronger performance, and increased shareholder value."

              Core net loss and core basic and fully-diluted
              loss per share are provided as a supplement to
              results provided in accordance with U.S.
              generally accepted accounting principles
              ("GAAP"). See, "Use of Non-GAAP Measures," for
    Note 1:   more details.

Overview

-- Taiwan: Business continued to deliver solid profitability; MMO games

A.V.A. and Tales Runner drove a 20 percent year-over-year increase in

FunTown's revenues; preparing early 2012 launch of new iPhone MahJong

product; tournament competitions held in 3Q for A.V.A. and MahJong -

initial steps in expanding GigaMedia's game tournament platform.

-- Southeast Asia: restructuring drove a quarter-over-quarter improvement

of gross margin, to 33.7 percent from 11.8 percent.

-- Investments ongoing in new China platform while continuing to evaluate

new games and pursue all means to resolve the dispute in connection with

the China-based business T2CN.

-- Corporate update: 1) share buyback continues to return value to

shareholders; under the board-approved share buyback plan, as of

September 30, 2011 GigaMedia has repurchased a total of 4.7 million

shares; and 2) management committed to the disposal of certain Asian

studio investments within 2011 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 Mangas Everest ("Everest Gaming").

                GIGAMEDIA 3Q11 CONSOLIDATED FINANCIAL RESULTS

    (unaudited, all
     figures in US$
     thousands,
     except per                              Change
     share amounts)      3Q11      3Q10        (%)
    Revenues (A)          7,782     7,831         -1
    Gross Profit (A)      4,566     4,262          7
    Loss from
     Operations (A)       3,730     4,903         NA
    Loss from
     Continuing
     Operations (A)       8,108     9,775         NA
    Net Loss
     Attributable to
     GigaMedia            7,801     9,960         NA
    Net Loss Per
     Share, Diluted        0.15      0.18         NA
    Core Loss from
     Operations(A)(B)     3,862     4,328         NA
    Core Net Loss
     (A) (B)              3,820     9,420         NA
    Core Net Loss
     Per Share,
     Diluted (A) (B)       0.07      0.17         NA
    EBITDA (C)           (7,687)   (8,708)        NA
    Cash, Cash
     Equivalents,
     Restricted
     Cash, and
     Marketable
     Securities-
     Current             57,136    94,420        -39

    (unaudited, all
     figures in US$
     thousands,
     except per
     share amounts)      3Q11       2Q11     Change (%)
    Revenues (A)          7,782       8,797         -12
    Gross Profit (A)      4,566       4,682          -2
    Loss from
     Operations (A)       3,730       3,633          NA
    Loss from
     Continuing
     Operations (A)       8,108       7,089          NA
    Net Loss
     Attributable to
     GigaMedia            7,801       6,959          NA
    Net Loss Per
     Share, Diluted        0.15        0.12          NA
    Core Loss from
     Operations(A)(B)     3,862       2,761          NA
    Core Net Loss
     (A) (B)              3,820       1,720          NA
    Core Net Loss
     Per Share,
     Diluted (A) (B)       0.07        0.03          NA
    EBITDA (C)           (7,687)     (5,896)         NA
    Cash, Cash
     Equivalents,
     Restricted
     Cash, and
     Marketable
     Securities-
     Current             57,136      70,663         -19

    (A) Excludes results from discontinued operations.
    (B) Core loss from operations, core net loss and core net loss per
    share exclude results from discontinued operations, financial
    results related to our gambling software business, non-cash share-
    based compensation expenses, bad debt expenses for loans receivable
    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 third quarter of 2011 held steady at $7.8 million compared to $7.8 million in the same period of 2010 and decreased from $8.8 million in the second quarter of 2011. The quarter-over-quarter decrease was due to lower contributions from GigaMedia's Asian online games business.

Revenues in the company's Asian online games business in the third quarter were stable year-over-year and decreased 12 percent compared with the second quarter. The quarterly sequential decrease reflected seasonality and a decrease in revenues from IAHGames in Southeast Asia.

Third-quarter revenues from FunTown, our operations in Taiwan and Hong Kong, increased to $6.3 million from $5.3 million a year ago and were down from $6.5 million in the second quarter of 2011. The year-over-year increase was attributable to growth in Tales Runner and new contributions from the game A.V.A. The quarterly sequential decrease reflected lower third-quarter contributions from casual games, which more than offset record results for the MMO game Tales Runner and continued growth in the MMO game A.V.A. Average monthly active paying accounts for all games in Taiwan and Hong Kong increased to approximately 85,000 during the third quarter, up 12 percent quarter-over-quarter due to successful Tales Runner promotions. Average monthly revenue per active paying account was approximately $24.80 during the third quarter of 2011, down 13 percent from the previous quarter. Third-quarter peak concurrent users were approximately 38,000, down 8 percent from the second quarter. FunTown is continuing to expand its mobile offerings and is preparing early 2012 launches of an updated version of its popular iPad MahJong offering and a new iPhone MahJong product.

Third-quarter revenues from IAHGames, our operations in Southeast Asia, were $1.5 million, down from $2.3 million in the second quarter of 2011. The decrease largely resulted from the planned termination of game box sales, as well as a decline in contributions from Bomberland. Online game revenues in the third quarter were led by contributions from FIFA Online 2, Dragonica Online and Granado Espada, primarily from Singapore, Vietnam and Thailand. In line with management's plans to increase focus on Vietnam, Thailand, and Indonesia, at the end of July GigaMedia launched a new fully localized offering of FIFA Online 2 in Indonesia; initial contributions from this initiative have been small to date.

Consolidated gross profit and gross profit for the Asian online games business for the third quarter increased to $4.6 million from $4.3 million in 2010 and was comparable to $4.7 million in the second quarter of 2011. Consolidated gross profit and gross profit for the Asian online games business benefited from lower operating costs in the third quarter compared to both the same period last year and the second quarter, primarily the result of the termination of game box sales in Southeast Asia. Third-quarter 2011 consolidated gross profit margin and gross profit margin in the Asian online games business increased to 58.7 percent from 54.4 percent in the same period in the prior year and from 53.2 percent in the second quarter of 2011 with the year-over-year and quarter-over-quarter increases reflecting the aforementioned lower operating costs.

Consolidated operating expenses for the third quarter decreased to $8.3 million from $9.2 million in the third quarter of 2010 and were comparable to $8.3 million in the second quarter of 2011. Operating expenses in the Asian online games business in the third quarter of 2011 were $6.6 million compared to $4.8 million in the prior year period and $6.2 million in the second quarter.

Consolidated product development and engineering expenses decreased to $376 thousand in the third quarter of 2011 from $603 thousand in the prior year in line with cost controls. Third-quarter 2011 results were comparable to the $384 thousand reported in the second quarter of 2011.

Consolidated selling and marketing expenses increased to $2.6 million in the third quarter from $2.0 million in 2010 and held steady compared to $2.7 million in the second quarter of 2011. The year-over-year variation resulted from A.V.A. promotions in 2011.

Consolidated general and administrative expenses decreased to $5.1 million in the third quarter from $6.5 million in 2010 were comparable to $5.2 million in the second quarter of 2011. Overall, results were in line with management's ongoing initiatives to control costs and expenses.

Consolidated loss from operations was $3.7 million compared to $4.9 million in the third quarter of 2010 and $3.6 million in the second quarter of 2011. Results reflected ongoing cost controls.

Core loss from operations for the third quarter of 2011 was $3.9 million compared to $4.3 million in the third quarter of 2010 and $2.8 million in the second quarter of 2011. (See the attachment to this release entitled "Reconciliations of Non-GAAP Results of Operations" for more details.)

Consolidated non-operating expenses/income during the third quarter of 2011 were expenses of $5.2 million compared to expenses of $4.8 million in the third quarter of 2010 and expenses of $3.2 million recorded in the second quarter of 2011. Third-quarter 2011 results included the following: 1) an equity loss of $5.6 million reflecting GigaMedia's remaining interest in Everest Gaming and 2) an equity loss of approximately $131 thousand related to GigaMedia's Asian online game operations, which more than offset a one-time gain of $665 thousand related to the termination of the partnership with Blizzard.

Consolidated net loss for the third quarter of 2011 was $7.8 million compared to a net loss of $10.0 million in the third quarter of 2010 and a net loss of $7.0 million in the second quarter of 2011. The period variations reflected the aforementioned factors affecting income from operations and consolidated non-operating expenses/income.

Core net loss for the third quarter of 2011 was $3.8 million compared to a core net loss of $9.4 million in the third quarter of 2010 and a core net loss of $1.7 million in the second quarter of 2011. Core basic and fully-diluted loss per share in the third quarter of 2011 were both $0.07. (See the attachment to this release entitled "Reconciliations of Non-GAAP Results of Operations" for more details.)

Consolidated EBITDA for the third quarter of 2011 was a loss of $7.7 million compared to a loss of $8.7 million in the same period last year and a loss of $5.9 million in the second quarter of 2011. Operating cash outflow for the third quarter of 2011 was $4.1 million. Capital expenditures totaled $533 thousand during the third quarter of 2011.

Cash and Strategic Investments

GigaMedia continued to maintain a solid balance sheet during the third quarter. Cash, cash equivalents, restricted cash, and marketable securities-current were $57.1 million, down from $70.7 million in the second quarter of 2011. Total short-term borrowings were $12.7 million at the end of the third quarter of 2011 compared to $13.2 million for the prior quarter. The net cash decrease in the third quarter of 2011 was $13.0 million, with the decrease primarily reflecting share repurchases under the company's share buyback program, as well as a loan to support development of Everest Gaming and payments related to development of SpongeBob SquarePants.

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 $99.4 million in the third quarter, up from $88.1 million last quarter.