GigaMedia Exits CyberWorks Internet Video Venture (Update5)
quote.bloomberg.com
By Cathy Chan
Hong Kong, Sept 8 (Bloomberg) -- GigaMedia Ltd., one of Taiwan's largest Internet service providers, scrapped a plan to form a venture with Pacific Century CyberWorks Ltd. to distribute video content, hindering the regional expansion plans of Asia's No. 2 Internet investor.
The companies agreed in May to form two ventures through which they could deliver content over the Internet. The first linked Gigamedia with ERA Communications Co., a content provider. The second linked CyberWorks with ERA and GigaMedia in an effort to produce Chinese content.
The alliances with the two Taiwan companies were to have been part of CyberWorks' recent expansion of Internet operations outside its Hong Kong base. CyberWorks paid HK$1.95 billion ($250 million) last month for Jaleco Ltd., an unprofitable Japanese arcade gamemaker, to gain a foothold in Japan.
``It's a bit of a setback for PCCW as they want a pan-Asian network,'' said James Loh, an analyst at Typhoon Eight Research Ltd. ``After Japan and India, Taiwan is the big market.''
The ventures unraveled a day after CMGI Inc., a U.S.-based Internet investment company, said it will forego plans to start an international venture fund with CyberWorks and Dallas-based buyout firm Hicks, Muse, Tate & Furst. CMGI said was trying to hasten the day it will generate operating profits.
CyberWorks shares fell as much as 3.3 percent today to HK$13.50. The shares have lost almost half their value since reaching a peak of HK$26.35 on Feb. 15. The company finished 4.7 percent lower at HK$13.20.
GigaMedia closed 1.2 percent lower in New York at 10 5/8.
Taiwan
Because Taiwan is a saturated market, ``PCCW needs a joint venture with a Taiwan company to break into the market and hold substantial market share,'' Loh said. The three companies are still discussing other forms of cooperation, CyberWorks said in a statement.
Analysts say the scrapping of the Taiwan venture with GigaMedia and the end of CyberWorks' involvement in the CMGI fund could spell difficulties for the Hong Kong company as it aims to expand.
``With CMGI and GigaMedia's sudden pullout, this could raise uncertainty on other deals CyberWorks is now working on,'' said Ronald Chan, analyst at Kleinwort Benson Securities.
CyberWorks' investments into more than 30 Internet-related ventures -- including SoftNet Systems Inc., Asia Java fund, and Hikari International venture fund -- could be on shaky grounds after the CMGI pullout, as a retreat in technology stock since early this year has cast doubts on those investments, analysts said.
Still, Loh says CyberWorks still has a rosy future. ``We have a `buy' on the stock and think it will reach HK$18 within 12 months,'' he said.
CyberWorks has high hopes over its broadband future and has been building content and distribution for its Pan-Asian multimedia project Network of the World, which aims to merge Internet with television. The company also plans to spend $1.5 billion on content development in the next five years.
CyberWorks is also making foray into India, one of biggest markets in the world, with an expected 30 million Internet users by 2004.
The company currently owns 49 percent of Internet service provider Data Access India Ltd. and a majority stake in PCC India Pvt. Ltd., which will develop content for TV channel and Internet. It will launch the NOW service in full by September.
CyberWorks has yet to forego the Taiwan market. It will invest up to $50 million in shares held by ERA President Chiu Fu Sheng even if the joint venture falls apart, according to spokeswoman Joan Wagner.
CyberWorks said it will work with ERA on a content- production joint venture for the Chinese version of its multimedia service of the NOW service to be launched in Taiwan next year.
GigaMedia has been tight-lipped about its withdrawal. Yichun Chang, chief financial officer of the company, said the pullout will be in the best interests of its shareholders.
``We can confirm we'll not be investing directly into ERA as originally contemplated,'' he said. ``There are many reasons which cannot be disclosed at the point.''
GigaMedia is in ``certain'' discussions with ERA on collaborations that include purchasing content from ERA and building a web site together, Chang said.
The Taiwan-based company, controlled by the Koo's Group, a financial services, cement and media conglomerate, is also in talks with CyberWorks on a distribution agreement to provide content on the two companies' networks.
``The scope of cooperation may be even bigger than the original joint venture structures,'' Chang said.
GigaMedia earlier this week entered an agreement with Yahoo! Inc., the world's No. 1 Internet search service, to distribute content and develop a co-branded Web site in Taiwan.
My comments on this release: This announcement appears that two ventures PCCW and GigaMedia entered into in May are probably both off. One definitely, no comment on the second with ERA. IMO GigaMedia's agreement with Yahoo! will mean the second venture with GigaMedia, ERA and PCCW is also off. JMHO |
