TWSE 2498 HTC 2018 Annual Report Annual Report 2018 HTC Annual Report Mops.twse.com.tw / htc.com / printed on April 23, 2019 HTC spokesman Name Peter Shen Title Chief Financial Officer Acting spokesman Not Available Tel +886 3 3753252 Email [email protected] corporate headquarters Address No. 23, Xinghua Road, Taoyuan District, Taoyuan City, Taiwan, R.O.C. Tel +886 3 3753252 taipei office Address No. 88, Section 3, Zhongxing Road, Xindian District, New Taipei City 231, Taiwan, R.O.C. Tel +886 2 89124138 Address 1F, No. 6-3, Baoqiang Road, Xindian District, New Taipei City, Taiwan, R.O.C. Tel +886 2 89124138 stock transfer agent The Transfer Agency Department of CTBC Bank Co., Ltd Address 5F, 83 Chung-Ching S. Rd. Sec 1, Taipei, Taiwan, R.O.C tel +886 2 66365566 web https://www.ctbcbank.com auditors Deloitte & Touche Auditors Wen-Ya Hsu and Casey Lai Address 20F, No. 100, Songren Rd., Xingyi Dist., Taipei, 11073, Taiwan, R.O.C. Tel +886 2 27259988 Web www.deloitte.com.tw overseas stock transfer information Trading luxembourg stock exchange Web www.bourse.lu HTC website Web www.htc.com 2 Table of contents TABLE OF CONTENTS 1 Letter to HTC Shareholders p. 4 5 Capital and shares p. 136 Financial status, operating results 2 Company profile p. 12 6 and risk management p. 156 Affiliate information and 3 Business operations p. 34 7 other special notes p. 168 4 Corporate governance p. 80 8 Financial information p. 184 Table of contents 3 LETTER TO HTC SHAREHOLDERS 6 Letter to HTC shareholders LETTER TO HTC SHAREHOLDERS Dear Shareholders, 2018 saw the emergence of a stronger, more agile innovator in HTC. Two significant transitions continued to gain traction among headset owners, and our VIVE Wave SDK has started were set in motion over the year that are revitalizing the Company and providing fresh impetus driving our platform across products from partner hardware companies in the VR ecosystem. to move forward as a dynamic technology powerhouse. It is of note that the 36 awards gained at CES 2019 covered hardware, software and platform innovations: a first for HTC. Additionally, we created a new business unit dedicated to the First, there has been an alignment across the whole Company around our vision of VIVE Reality, burgeoning enterprise VR market, an offering that goes far beyond our traditional hardware announced last year, whereby key technologies such as virtual and augmented reality, artificial sales model into consultancy and services, serving customers in manufacturing, design, retail, intelligence, high-speed 5G connectivity and emerging technologies like blockchain will be automotive, aeronautics, education, healthcare, and location-based entertainment; markets not combined in multiple ways to create richer immersive experiences that will change our lives. traditionally addressed by HTC. These fundamental building blocks are increasingly being applied across our product portfolio, and HTC is keenly focused on investing in the technologies and the talent to develop them. HTC continues to invest heavily yet wisely in new technologies and processes to ensure that we retain our leadership in innovation in all key areas, as we believe this is the right strategy to This alignment afforded a unique opportunity to fully integrate the sales, marketing and drive the Company forward into the era of VIVE Reality. operations functions for the VIVE and smartphone businesses in the regions, undertaken over the year, which has removed barriers between departments and promoted synergies. The impact has been remarkable: HTC earned a record number of awards at the Consumer Electronics Show (CES) in Las Vegas in January 2019, surpassing our great performance in 2018 by over Product Strategy 20%, and there is a new spirit of innovation and determination across the Company. In line with our VIVE Reality vision, HTC has focused on developing and implementing the core The second transition involves HTC being reimagined as a complete ecosystem company, technologies of virtual reality, 5G connectivity, blockchain and artificial intelligence across our encompassing not only our bedrock expertise in hardware and software integration, and portfolio. extending our content creation and platform activities, but adding services such as enterprise VR solutions that provide genuine value to our customers, as well as expediting adoption of the technology. In playing a greater role in enabling VIVE Reality, HTC is creating new revenue Smartphones and Connected Devices and margin opportunities over the medium to long term. To achieve this, we are reshaping HTC smartphones saw numerous feature enhancements in 2018, including to HTC’s innovative our hardware development processes with a view to optimizing our returns across software, Edge Sense ‘squeeze’ technology for more intuitive one-handed interactions, as well as wider- platform and services, and have increased our skill base and dedicated the necessary resources angle front cameras to create better selfies. High-efficiency, low-distortion earphone amplifiers to achieve this objective. greatly enhance the sound effects of the built-in speakers. In 2018, we saw progress across all of these business areas. Alongside the premium VR and The flagship smartphone of 2018 was the HTC U12+, which was launched in May 2018 to smartphone hardware offerings launched over the year, our VIVEPORT VR content store considerable acclaim, and was followed later in the year by the HTC U12 life, incorporating Letter to HTC shareholders 7 8 Letter to HTC shareholders some of the key features of the HTC U12+, including the 18:9 widescreen format, and 4K content, similar to the Netflix model for movies. Across all platforms, there are now over 4,500 video capability. For the mid-tier market, the HTC Desire 12 and Desire 12+ phones launched titles for VIVE headsets, a 50% increase over the previous year. in Q1 2018 in certain target markets; these phones followed the smart design and advanced photographic features of the HTC U series, and the HTC Desire 12+ boasted a large 6” display. 2018 was a stellar year for VIVE Studios, with the production of the world’s first feature-length VR film, ‘7 Miracles’, which won best VR film at the Raindance Film Festival at the end of 2018. HTC also innovated laterally on the smartphone platform with the HTC EXODUS blockchain It published content for entertainment, such as the ‘Ready Player One’ open world titles, and phone, enabling consumers to own their digital keys, a vital step in empowering consumers for enterprise, targeting training, healthcare, fitness and education applications. VIVE Studios to control their own digital identity, data and virtual creations. This concept continues to be also launched the VIVE Libraries program in over 110 public libraries in the US, featuring 40 developed, to make the benefits of blockchain technology more accessible to consumers. education and experiential titles, to help democratize access to VR. Finally, the smartphone and connected devices team has focused considerable R&D resources VIVE ORIGINALS, the Taipei-based VR entertainment content team, saw the co-produced on 5G communication technologies, the next generation of high-speed connectivity. The large titles ‘The Deserted’, ‘5x1’ (five VR short films directed by Chinese golden-awarded directors) bandwidth and low latency of 5G will be a game-changer for industry and business as well and the ‘Gloomy Eyes’ VR animation featured at numerous international film festivals to great as home applications, and HTC is widely acknowledged as having advanced capabilities in acclaim, while ‘Circus Galactica’ was featured in ‘America’s Got Talent’, the first time for a VR- wireless technologies, as demonstrated with numerous industry firsts with communications interactive performance at this reality show. technologies in our history. The first product in this new line is the HTC 5G Hub, demonstrated in late 2018 and launched at Mobile World Congress (MWC) in February 2019, with some of the VIVE Arts continued its important VR outreach work with the world’s leading art galleries, world’s leading telecom carriers joining as launch partners, including Sprint in the US, Telstra in museums and artists. Following the success of the exhibitions at the Tate Modern and the Australia, and Deutsche Telekom, Elisa, Sunrise and Three in Europe. This all-new smart sensor Royal Academy of Arts in London and the National Palace Museum in Taipei, VIVE became the hub system provides an all-new user experience, and a more intuitive and more convenient first ever VR partner of Art Basel, the leading international art fair, presenting new works by operating experience at home, in the office and on the go. We look forward to forging a deeper contemporary artists in both 2018 and 2019. The ‘Up the River During Qingming’ experience partnership with carriers as the HTC 5G Hub rolls out globally. at the National Palace Museum and Monet exhibition at Paris’ Orangerie were spectacularly immersive journeys into two of the world’s classic artworks, while the T. Rex experience at the VIVE Virtual Reality American Museum of Natural History brings pre-history back to life. As a teaching tool or an art medium, immersive VR is proving a welcome complement to the traditional art environment. HTC’s VIVE virtual reality business had another bumper year, with numerous targeted hardware, content and platform announcements. For the enterprise market, HTC launched HTC’s VIVELAND VR arcade program, launched in Taipei in 2016, has extended both within the VIVE Pro at CES 2018, and the VIVE Pro Eye a year later, another VR headset aimed at Taiwan and further afield, with a new arcade opening in Hong Kong in January 2019 and another professional users featuring precision eye-tracking and foveated rendering for optimized coming to Korea shortly. The VIVELAND concept itself has been successfully transplanted in performance as well as greater feedback for developers on their content environment.