$3.94
-0.07 (-1.75%)
GigaMedia Limited (GIGM)
CAPS Rating:
A holding company which through its subsidiaries, develops and licenses online gaming software and provide application services, owns and operates an online games business, and provide broadband Internet access services.
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I was always suspicious of some of the grander claims made about this stock. Sitting as it does at the intersection of a bunch of seemingly settled growth trends, I always thought that the extremely low barriers to entry in the (online-games)+(gambling)+(China)=(profit!!) equation were significant enough to warrant some caution as the shares raced ahead.Now that they've fallen back to levels that I feel are supported by their current cash flow and earnings, I am far more interested.Another issue that I have not seen addressed and which I suspect gets lost in most American's minds is the issue of the location in Taiwan and the sort of potential constraint that may create going forward for doing business in China. Certainly, a risk in holding this stock is that China uses trade sanctions against Taiwan in their attempt to pursue their foreign policy agenda of reincorporating Taiwan into the PRC. There should be little doubt that the economic damage would be nearly entirely one-sided.
The Taiwan people just elected a Nationalist Party President. His push is improved relations with China, the people know they are missing the financial boat of China's rapidly expanding economy.They have already opened up with daily flights between Taiwan and major Chinese cities and Taiwan is the biggest investor in China.As for GIGM and the political situation, I don't believe a $200 million dollar a year company pushing casual online games to the mainland is very high on the governments hit list of businessesto confront.As for the formula (online-games) (gambling) (China)=(profit!!) , 70% of Gigamedia's revenue come from it's European based operations. The profit has already been created and grows consistently Q over Q.The Asia casual game market was near nonexistent for Gigamendia two years ago, now it is a major contributor of revenue and income, though still dwarfed by the Euro gambling business. In addition, UIM (GIGM's Gambling operator) has established a new site in Japan. It will be interesting to see how it is accepted. ( www.janpachi.com )And one major factor that is commonly missed on GIGM is that it classifies its Asian operation as SE Asia. They are teaming up with portals throughout Asia, not just China. The Chinese site, T2CN, ( http://www.t2cn.com/ ) seems to be expanding much faster than I expected. IAHGames http://www.iahgames.com/products.html ) in partnership with companies like The9 (NCTY) is bringing some top name games to SE Asia.GIGM needs to be watched in today's market as all stocks do. But today's price could make it a portfolio growth machine over time.
"Taiwan is the biggest investor in China" - really? Big but certainly not the biggest. After all Taiwan is only a country of about 20 million people.And of course the Chinese government has better things to do than to bother GIGM, but currently the trade flows are pretty much one way: 4 to 1 and widening. And the current government - THE NATIONALISTS aka KUOMINTANG are the heirs of CHIANG KAI SHEK. That'd be the guy who the communists kicked out aren't quite the rah-rah China bunch you paint them to be, especially when China (PRC) is doing war maneuvers just off their shores. But I don't want to get into an argument about history or the state of politics in Taiwan. I assume you would agree that no matter the current state of relations between the two that this is a fragile relationship.My only point is that this is conflict is a big deal. And while I do not believe that China will invade anytime soon, I think that there's a greater than 20% chance that China will use the threat that it might cut off Taiwan's exports to the PRC and the loss of their sizeable investments there as a way to encourage Taiwan's populace to see things the Han Chinese way.So tell me, because I have no clue, how much of GIGM's current and future expected revenue comes from the PRC. Is it just 30%? If so, wow, I didn't know that.