Information updated to 2006.04.20 48 2005 Annual Report Key figures Unit: NT$ million Year 2001 2002 2003 2004 2005 Sales Revenue 58,820 93,229 108,699 147,770 124,407 Net Income 3,031 7,400 7,500 7,619 (5,226) Net Margin (%) 5 8 7 5 (4) Retroactively Adjusted Earnings Per Share (NT$/share) 1.32 3.08 3.03 3.10 (2.12) Net Asset Value 28,141 41,278 45,462 49,078 44,431 Note: All financials are non-consolidated figures (Taiwan parent company level) 48 2005 Annual Report Message To Our Shareholders Our Shareholders To Message Dear Esteemed BenQ Shareholders, BenQ announced in June 2005 it will acquire Siemens AG’s mobile handset business (Siemens MD) in an acquisition that successfully propelled BenQ onto the global stage as a renowned brand. Following the closing of the acquisition, we began our first step in Q4 of 2005 when the Company incurred a net loss of 5.2 billion NT$ in 2005, translating to a loss of 2.12 NT$ per share on revenue of NT$ 162.3 billion on consolidated basis. Since fourth quarter 2005, we have worked seamlessly with our Germany-based co-workers and re-enforced managerial resources in areas where BenQ has a strong comparative advantage. In a truly complementary merger of mobile handset assets without breaking our stride, we introduced twelve breathtaking new handsets in Q1 of 2006. Since October, the Company has undertaken restructuring initiatives to cut costs, to accelerate time-to-market for new products, and to restore customer confidence. I believe our initial efforts have resulted in a successful repositioning of the newly launched BenQ-Siemens brand. We are confident BenQ-Siemens will be synonymous with leadership in multimedia innovation, attractive styling and form factors, and potent lifestyle benefits. With the twelve new handsets and others to come, order books should continue to strengthen along with profit contribution. e Company’s various major product lines continued their strong performance in 2005. BenQ’s LCD displays lead the industry in quality and functionality leveraging our advanced display technology and vertical integration within our business group. In a year when we continued topping previous shipment totals, BenQ gained significant market share to solidify the Company’s position as a global top three manufacturer of LCD displays. In some countries, notably Brazil, Russia, India, and China, BenQ has become the leading name in the display market. In the projector product space, BenQ’s projectors ascended to the number top two spot in sales globally in the fourth quarter of 2005. e company’s success in projector business is anchored by our industry-leading technology, short time-to-market and effective channel strategy. Continuous innovation has always been central to BenQ's corporate strategy, and we intend to continue creating world-class products with designs that captivate consumers’ imagination. In March 2006, BenQ received 17 major design distinctions— third highest total in the world—at Germany’s prestigious iF Design Award. In total, BenQ received 125 major international design awards in the last four years. Leveraging BenQ’s design prowess and Germany’s heritage in engineering and precision cramanship, we believe BenQ-Siemens will continue to captivate the world with creativity and quality. Reflecting the Company's commitment to innovation, BenQ has allocated about 3% of sales to research & development over the past five years and currently holds approximately 3000 global patents. On the outside, the Siemens MD acquisition catapulted BenQ onto the world stage. On the inside, the quest for greater focus and profitability is never ending. In April 2006, the company formed a strategic alliance with Lite-On IT through manufacturing integration in optical storage products, bringing together two of the industry’s leading players and enhanced the overall competitiveness of Taiwan’s storage sector. Our management team aims to continue streamlining business processes, driving better focus and higher profitability. Although the initial integration period at BenQ Mobile is not without pain, we are very upbeat about the initial synergies. Our journey to build a global brand has not been possible without your support. We have the conviction that directing the Company away from the hyper-competitive forces of the ODM business model was the right thing to do. Whichever the corporate direction, we have never let out of our sight the principal objective when it comes to taking care of shareholders: to generate solid returns. As we look ahead to 2006 and beyond, we expect both the profit-and-loss accounts and balance sheet to strengthen over time, and when they do, return-on-equity and cash flow generation should improve significantly. We thank you for your continued support! Yours sincerely, K.Y. Lee - Chairman Sheaffer Lee - Chief Operating Officer 2005 Annual Report 1 Corporate Strategy Corporate Table of Contents Message To Our Shareholders 01 Table of Contents 02 Corporate Strategy 03 Review of Operations and Product Strategy 11 Corporate Governance 30 Company Financials 38 Contact Information BENQ CORPORATION REGISTRAR & TRANSFER AGENT Headquarters / Taoyuan Plant SinoPac Securities 157 Shan-Ying Road, Gueishan, Taoyuan 333, Taiwan, R.O.C. 3F, 53, Po Ai Road, Taipei 100, Taiwan, R.O.C. Phone: 886-3-359-8800 Phone: 886-2-2381-6288 http://www.sinopacsecurities.com Taipei office 18 Jihu Road, Neihu, Taipei 114, Taiwan, R.O.C. INDEPENDENT ACCOUNTANTS Phone: 886-2-2799-8800 Wu Kuo-Feng & Wang Ming-Jhy, CPA KPMG Peat Marwick INVESTOR RELATIONS CONTACTS 6th Fl., No. 156, Sec.3, Min-Sheng East Road, Taipei 105, Taiwan, Spokesperson R.O.C. Eric ky Yu Phone: 886-2-2715-9999 VP- CFO http://www.kpmg.com.tw Phone: 886-3-359-8800 [email protected] DOMESTIC STOCK EXCHANGE LISTING BenQ Common shares Deputy Spokesperson Taiwan Stock Exchange Corporation Jasmin Hung / David W Huang http://www.tse.com.tw/en/ Controller / Senior Manager of Finance Phone: 886-3-359-8800 OVERSEAS SECURITY EXCHANGE LISTING [email protected] For further information, visit BenQ worldwide website and login at BENQ ON THE INTERNET Investor Relations BenQ’s Investor Relations home page on the worldwide website BenQ Global Depositary Shares offers a wealth of corporate information, including the latest annual Luxemburg Stock Exchange report and financial results. ISIN: US0823012010 Website: BenQ.com/ir.htm http://www.bourse.lu BenQ Euro Convertible Bonds Luxemburg Stock Exchange ISIN: UX0124567602 http://www.bourse.lu 2 2005 Annual Report 3 Corporate Strategy Corporate CorporateProjector PE7700 Strategy BenQ enters 2006 a better known brand in many Asia Pacific and European markets. e company is building its 5C strategy (computing, communications, consumer electronics, crystal & component, cool brand & caring) to better address market trends and consumers’ digital lifestyle needs. At BenQ, we believe the new digital lifestyle is being shaped by the meeting of opposites. No where is the new digital lifestyle more obvious than where work meets play, and where style fuses with function; where connectivity is married with mobility, and where here mixes with there; where the familiar is united with the unexpected, and where technology and enjoyment merge to become one. Since the inception of the BenQ brand four years ago, BenQ has achieved its initial goals of high growth and awareness. In 2005 BenQ introduced a new entrant onto the global stage, BenQ Mobile, in the mobile handset industry when BenQ acquired Siemens AG’s mobile devices business group. We believe this new combination of precision German crasmanship and digital enjoyment will power BenQ- Siemens’ unique growth platform. Having achieved its goals of awareness building in many key markets, BenQ now enters a new phase of growth with the goal of becoming a brand that consumers prefer. 2 2005 Annual Report 2005 Annual Report 3 5C Corporate Strategy Strategy Corporate 5C Strategy Better Addressing Market Trends and Consumer Digital Lifestyles 5C For a number of years, BenQ has been developing leading–edge products consistent with the company's computing- communications-consumer electronics (3C) roadmap. Today, BenQ is one of a few Asian brands expanding beyond the 3C technology arena; BenQ's business/product strategy now incorporates two additional elements-- BenQ's crystal TFT LCD technology and cool branding -- to make up what we call the 5C strategy. We are optimistic that BenQ's 5C strategy will enable the company to better address multimedia convergence trends, which we believe will center on three applications having one common element in the crystal TFT LCD technology: mobile phone, laptop computer, and television. With crystal TFT LCD technology playing an essential role in all these applications and BenQ's group of companies possessing Know-how on key component technologies, BenQ is well positioned to realize 5C vision of building a cool brand strong on lifestyle benefits, leveraging strong core technological strengths. 4 2005 Annual Report 2005 Annual Report 5 Meeting of Opposites Strategy Corporate BenQ's Design Philosophy To fulfill BenQ’s vision of "Bringing Enjoyment and Quality to Life," BenQ established its Lifestyle Design Center (LDC) focused on delivering better designs and technology to meet consumer demands. BenQ’s design philosophy highlights harmony in the "Meeting of Opposites" and optimal fusion of functional and emotional benefits. BenQ extracts the essence of the Western & Asian culture, philosophy, architecture and artifacts, and infuses it with modern occidental design composition to create a unique design language. Winner of 125 global awards in the past four years, BenQ is establishing itself as a leader in industrial design and positioned to score winning impressions. - BenQ Lifestyle Design Center "If we could test design on a temperature meter, we would find modernism or rationalism on the extreme cold side and post- modernism on the extreme hot side." - Andrea Branzi, highly respected Italian architect/designer BenQ design, staying abreast of lifestyle trends and moving swily between the extremes of hot and cold, seeks the most optimal temperature.