HTC spokesman Name Peter Shen Title Chief Financial Ocer 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 oce 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 12th Floor, Hung Tai Financial Plaza, 156 Min Sheng East Road. Sec 3, Taipei, Taiwan, R.O.C. Tel +886 2 25459988 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. 120 Financial status, operating results 2 Company profile p. 12 6 and risk management p. 140 Affiliate information and 3 Business operations p. 32 7 other special notes p. 154 8 Financial information p. 178 4 Corporate governance p. 62 Table of contents 3 LETTER TO HTC SHAREHOLDERS 6 Letter to HTC shareholders LETTER TO HTC SHAREHOLDERS Dear Shareholders, In the year that HTC celebrated its 20th anniversary, we want to express our deep appreciation towards our shareholders for your dedicated support and commitment to our pursuit of HTC VISION: VIVE Reality brilliance. Over the last three years, we’ve been working hard to position HTC for the future, Early in 2018, we defined a new vision for HTC, a vision to unite all teams and businesses around focusing on delivering the innovation and technology that defines HTC and devoting the a single direction: VIVE Reality. necessary resources to create great products. We produced another strong year of innovation in 2017, recording more technology firsts and consolidating our position as thought leaders across VIVE was founded three years ago on the uniting of humanity and technology to unleash the our product groups. imagination. VIVE Reality describes the convergence of Virtual and Augmented Reality (VR and AR), artificial intelligence (AI), high-speed connectivity and other emerging technologies, In September 2017, we entered a ground-breaking business cooperation agreement with Google, where humans interact with virtual and augmented reality environments naturally and natively. Inc., whereby the ‘Powered by HTC’ engineering and technical teams working on Google’s Pixel 5G and subsequent wireless connectivity standards will usher in a whole new era of experiences smartphones were transferred to Google in a deal worth $1.1 billion. Building on our decade- that will truly revolutionize the way we live, work, and play. Light-speed data transmission long strategic relationship with Google, this agreement allows us to strengthen our HTC- and edge computing will enable access to immersive content anywhere, in real time. In this branded smartphone business, enabling a more focused product portfolio, greater operational new ecosystem, smartphones will continue to play a vital role, and indeed will be the first step efficiency and financial flexibility. It also enables HTC to continue investing in emerging frontier towards 5G for most of us, although they may take on different forms in the future as the need technologies, including VR, AR, AI, Smart IoT and Blockchain which will be vital across all of our for device-based computing power diminishes. 5G and AI are complementary technologies for businesses and present significant long-term growth opportunities. VR and AR, enabling each device to provide the most immersive experiences for consumers and enterprises. This agreement also represents a substantial investment in Taiwan as a key innovation and engineering hub, and it is a true testament to the engineering and innovation powerhouse This convergence of technologies is reflected in HTC’s realigned organization, with the VIVE that HTC has built over the last twenty years. The teams that have been transferred to Google and smartphone businesses collectively able to leverage the technical expertise and extensive will continue to play a key role in building the Android ecosystem for the benefit of the whole experience of the diverse, world class design, engineering and manufacturing teams within HTC. industry. This will enable us to continue to create beautiful, considered and intelligent products that empower our customers to pursue their own brilliance. This move, combined with the significant effort we have made in strengthening and investing in our innovation teams, streamlining our business processes and reducing our operating expenditure over the past three years, has created a solid foundation on which we can build the future of HTC. Letter to HTC shareholders 7 8 Letter to HTC shareholders PRODUCT STRATEGY The HTC VIVE virtual reality system saw continued sales momentum over the year, with a price reduction to spur wider access in advance of the launch of the new headset, the HTC VIVE Pro, which was revealed at the Consumer Electronics Show (CES) in January 2018 to wide acclaim, winning many ‘best in show’ awards. A full headset upgrade Smartphones and Connected Devices with greatly enhanced resolution and built-in audio as well as improved design, the HTC VIVE Pro started shipping in The HTC-branded smartphone business remains a strategic business for HTC. Smartphones are with us 24 hours Q2 2018. 2017 also saw the launch in China of the VIVE Focus, the first standalone headset in the VIVE series, which a day; they are our digital hub and our primary connection to friends and family. HTC has a long and distinguished has been strongly welcomed, especially by the enterprise sector. history in this industry, and we continue to raise the bar for innovation. Beyond the headset, HTC launched two other innovations serving to expand the VR ecosystem: first, the VIVE 2017 saw several industry-first smartphone innovations introduced in the new family of smartphones called the U Tracker, a device that can be affixed to real-life peripheral accessories and tracked by the base stations in the same way series, which included the flagship HTC U11, the HTC U11+ and the HTC U11 life. as the controllers. The Tracker has proved popular for applications like VR Sports, where it can be affixed to a table tennis paddle or a baseball bat for that authentic feel. Second was the VIVE Wireless Adaptor, also announced at the For many years, interactions on smartphones have centered around on-screen interaction, but the HTC U11 CES show in 2018, which allows users to ‘cut the cord’ and experience VIVE PC VR untethered. introduced the next dimension in touch interaction: the squeeze. HTC Edge Sense is an unprecedented, intuitive way to interact with your smartphone, allowing users to launch and operate their favorite applications with a simple The VIVE Focus launch saw the launch of the VIVE WAVE Open Platform, which is aimed at bringing together squeeze of their phone. HTC Edge Sense also featured in the HTC U11+ smartphone launched later in the year. the highly fragmented mobile VR market by creating a common platform and storefront across multiple hardware vendors, enabling easy mobile VR content development and device optimization. Numerous content developers have Our camera technologies were unparalleled in 2017, with smartphones designed by our teams taking the top three already built VR content optimized for VIVE Wave, with more set to join as the platform gains momentum. scores in the independent DxOMark industry benchmark. The HTC U11 achieved the highest ever ranking for a smartphone camera at launch. At the same time, our audio technologies were further refined, with HTC USonic The VIVEPORT VR app marketplace has grown considerably in the past year, and now hosts over 1,000 content offering personalized audio settings and the most advanced headset for personal audio, which even included active titles globally, providing an exceptional platform for content developers to promote their titles and enable greater noise cancellation. monetization opportunities. During 2017, VIVEPORT Subscriptions was introduced, whereby subscribers can try five titles a month, which has created a consistent and growing revenue stream as well as building customer loyalty. 2017 was the year that AI came to smartphones with HTC Sense Companion, with the HTC U11 introducing the world to both Google Assistant and Amazon Alexa personal assistants available at the simple utterance of their respective Content is a critical aspect of the VR ecosystem, with the number of titles across VIVEPORT and Steam at over 3,000 wake-up phrases. by early 2018. The VIVE platform received a boost in 2017 with the publication of Triple-A games for the HTC VIVE, including major franchises such as Star Trek: Bridge Crew, Doom VFR, L.A. Noir and FallOut 4, with more set to follow Finally, there was a new design language for all U series smartphones in the form of a seamless, curved ‘liquid glass in 2018. These titles deliver hundreds of hours of gameplay, bringing the original PC games to life in room-scale VR surface’, created using a specialized technology for a remarkable reflective finish in strong colors, some with a stunning with the HTC VIVE, and it is anticipated that these popular brands will provide fresh momentum to the adoption of dual-tone effect. VR among more mainstream consumers. In line with HTC practice, we will continue to bring flagship technologies to the wider market smartphones, with VIVE Studios, the content production engine for VIVE, saw the publication of several popular titles in 2017, including several features of the HTC U series set to feature on mid-range phones in 2018.