Investor Relations

Letter to Shareholders

Ladies and Gentlemen,

Thanks to all shareholders for your love and support for Accton in the past year; we would like to show our gratitude. Report is hereby made related to the summary of Accton’s business conditions as of 2019 and business plans for 2020.

I. 2019 Business Results

(1) Implementation and Results of the 2019 Business Plan

In 2019, the Company’s consolidated revenue was NT$55.401 billion, an increase of about 29% over the previous year, and consolidated net profit after tax was NT$4.950 billion, an increase of 68% over the previous year. In terms of revenue distribution in various product lines, the network switch accounted for 68% of the total revenue, the network application equipment accounted for 16% of revenue, the network access equipment accounted for 7% of revenue, and the wireless network equipment accounted for 4% of revenue.

Looking forward to the future, with the Company mastering the core technology of the new era of network communication and under the product layout of the accelerating computing technology, the overall revenue will continue to grow with the increasing demand for information application and network infrastructure.

(2) Budget Execution Status

In 2019, revenue and profit were above the Company’s internal objectives.

(3) Analysis of Financial Income and Expenditure and Profitability

The consolidated revenue for the whole year 2019 was NT$55.401 billion, an increase of about 29% over the previous year; the consolidated gross profit margin of the whole year approximated to 20%; the consolidated net profit after tax was NT$4.95 billion, equivalent to the consolidated net profit after tax per share of NT$8.91.

(4) Research and Development Status

The Company will continue to invest in the innovation of cutting-edge technology for hardware and software of network communication, and the key R&D for 2019 are as follows:

1. Invest in the development of Open Network switches and router products, cooperate with internationally renowned software partners and open software to provide cloud computing solutions. We also actively participate in the operation and cooperation of open technology development platforms, including OCP (Open Compute Project), TIP (Telecom Infrastructure Project), ONF (Open Networking Foundation) and other important open technology structural platforms, and participate in the development of various open structural technologies, such as SONiC (Software for Open Network in the Cloud).

2. Leading the industry with the mass production of Hyper Scale Data Center high-density 100G and 400G switches.

3. Leading in the development of high-density 200G/600G fiber optic transmission products that provides connections between data centers, fulfilling the transmission demand between data centers.

4. Development of millimeter wave wireless high-speed transmission technology with the Wi-Fi wireless communication technology, mass production of 2.5Gbps point-to-point and point-to-multipoint transmission products, as well as the tri-band omni base station with a transmission rate of 10Gbps, providing a new generation of high-speed wireless network access solutions.

5. Development in wireless network technology, including 802.11ax Wi-Fi and other newly developed wireless network technology products.

6. R&D of 100G smart network card, establish a virtual server network and provide server network offload function to significantly improve the overall computing efficiency.

7. Mass production of the artificial intelligence (AI) inferencing acceleration card,which provides deep learning clustering calculation function required by the data center to be utilized in AI calculation of massive data.

8. In response to the growth of the Company’s business and the actual demand of the overall market expansion, the Company established the Accton Zhunan Plant to expand the production capacity of the production base in Taiwan, improve the quality of manufacturing technology and invest in the upgrade of process automation and capacity optimization. Cloud and AI technology are utilized to connect the production machinery cluster and reach the production quality and manufacturing efficiency of intelligent manufacturing.

II. Summary of Business Plan for the Current Year

(1) Business Policy

1. Focus on IT infrastructure industry; develop highly-integrated and high-value product solutions.

2. Master core technology, strengthen product innovation, expand technical frontiers, and strengthen brand access.

3. Enhance R&D and business innovative energy to establish global and domestic competitiveness.

4. Continue to enhance the operation efficiency of the supply chain, improve production capacity in accordance with the circumstances, enhance overall operational efficiency, and establish operation capacity for the global structure.

5. Establish strategic partnerships, foster the cooperation of the industry and development of systems to provide diversified integration solutions and professional after sales services for customers.

6. Continuous efforts to provide professional OEM/ODM services and brand sales in parallel, and to provide high-quality products in response to market demand.

(2) Production and Sales Policy

1. Strengthen supply chain and improve production capacity, dynamically adjust production capacity in response to customer demand.

2. In response to open platform business opportunities, participate in relevant international social media network communication organizations.

3. Cultivate international large customers and establish a multi-point international production, sales and after-sales service system.

4. Prospective investment in new technologies and development of new high-value customers.

III. Future Development Strategies of the Company

To enhance revenue and profitability, the main development strategies of the Company are as follows:

(1) Corporate and telecom network customers

1. Provide high-efficiency, high-quality products and services; maintain technological leadership.

2. Strengthen cooperation and partnership strategies to jointly develop new markets,continuously improve operation and strive for the best profits.

3. Provide network equipment that fulfills the future mobile broadband and fixed network requirements in conjunction with chip manufacturers, software developers, solution providers and telecommunication network service operators.

(2) Hyper Scale Data Center customers

1. For Hyper Scale Data Center customers demands, advanced network products equipped with backbone transmission in line with open network architecture and software defined network specifications will be launched.

2. Strengthen the software and hardware platform, provide a friendly software development environment, actively participate in the software open source community and provide open source program testing services.

(3) Wireless network technology integration solution

1. Strengthen the management of wireless network platform and access control options to meet the needs of timeliness, security and simplified operation and maintenance of various wireless applications.

2. Utilize different radio frequency technologies such as 802.11ax, 802.11a and 5G NR, the development of wireless network connection products will be completed, and a complete network coverage scheme will be provided.

(4) Network applications and accelerator products

Develop network function virtualization server to meet the application demands of Edge Computing and SD-WAN. Continue to launch high-performance network uninstallation, information security, data storage and artificial intelligence computing accelerator
products.

(5) Internet of Things application solutions

Integrate IoT application technology, use broadband, mobile/wireless technology, cloud computing technology to develop solutions for artificial intelligence and automation.

(6) Improve quality, increase productivity, strengthen production flexibility, fast delivery

1. Increase overall production capacity and local prduction allocation in response to market and customer demand.

2. Implement customer-oriented supply chains, optimize product production process,and implement production line intelligence.

3. Implementing quality management system (QMS) feedback management. Improve product planning quality, shorten product development cycle, improve customer satisfaction with high efficiency.

4. Cultivate quality strategic suppliers, formulate standard parts and materials, ensure diversified supply and stable delivery.

IV. Impact of External Competition, Legal Environment and Overall Business Environment

With the global 5G mobile broadband network being built one after another, the demand for network broadband is growing rapidly, cloud applications are increasing continuously. In addition, demand for rapid and secured application services will drive the innovation and business opportunities of network telecommunication equipment. For the future trends in artificial intelligence and the Internet of Things, open architecture and software defined IT will also require a large amount of integrated network equipment, which will drive the next wave of business opportunities. However, the rise of international protectionism and the increasing demand for localization and autonomy of countries will also create new operational challenges and risks. A more flexible global operation strategy shall be adopted to mitigate the risks.

Whether the difficulties in supply chain management caused by the recent COVID-19 epidemic has resulted in a delay in supply or decrease in demand, also requires integration and analysis of information in a prudent manner, so as to implement countermeasures at any time. The biggest challenge for the year does not solely come from the changes in technology and industry trend, but also the ability to adapt to the risks of the global systematic uncertainties, and implement countermeasures and make operation adjustments.

We sincerely thank all shareholders for their long-term support and recognition. Our management team and staff will continue to work hard to create higher business value for all shareholders.

We wish all shareholders good health, increasing fortune and wisdom, best of luck and happiness.