Stock Code:2377 MICRO STAR INTERNATIONAL CO., LTD. 2017 ANNUAL REPORT Taiwan Stock Exchange Market Observation Post System: http://mops.twse.com.tw MSI annual report is available at: http://www.msi.com Printed on May 3, 2018 Notice to readers This English-version annual report is a summary translation of the Chinese version and is not an official document of the shareholders’ meeting. If there is any discrepancy between the English and Chinese versions, the Chinese version shall prevail. I. SPOKESPERSON & DEPUTY SPOKESPERSON Spokesperson: Hung,Pao-Yu Title: Chief Financial Officer Tel.: 886-2-3234-5599 E-mail: [email protected] DEPUTY SPOKESPERSON Deputy Spokesperson: Lin,Yi-Kai Title: Senior Manager Tel.: 886-2-3234-5599 E-mail: [email protected] Deputy Spokesperson: Chang,Ju-Ting Title: Senior Manager Tel.: 886-2-3234-5599 E-mail: [email protected] II. HEADQUARTERS AND PLANTS Tel.: 886-2-3234-5599 Address: No.69, Lide St., Zhonghe Dist., New Taipei City 235, Taiwan (R.O.C) ¡.SECURITIES DEALING INSTITUTE Name : Chinatrust Transfer Agent Address : 5F, No.83, Sec. 1, Chung-Chin S. Rd., Zhongzheng Dist., Taipei City Tel. : 886-2-6636-5566 Website : http://www.ctbcbank.com IV. AUDITORS Name : CPA: Liang, Hua-Ling & Lai,Chung-Hsi CPA Firm : PricewaterhouseCoopers, Taiwan Address : 27F, No.333, Sec. 1, Keelung Rd., Xinyi Dist., Taipei City 110 Tel. : (886) 2 2729-6666 E-mail : http://www.pwc.com V. EXCHANGEABLE BOND EXCHANGE MARKETPLACE None VI. COMPANY WEBSITE http://www.msi.com CONTENTS Page . Letter to shareholders …………………………………………………………………………………………………………………1 ¢ . Introduction of the company ……………………………………………………………………………………………………… 4 ( )Establishment date ……………..…...………………………..……………………………………………...…………………4 (¢ )Development history ...………………………………………………………………………………………….………………4 £ .Corporate governance report …………………………………………………………………………………......………………7 ( )Corporate Organization …………………………………………………………………………………………………………7 (¢ )Directors, Supervisors, President, Vice President, Assistant V.P., and department heads ...………...………………………………………………………………………………………………………………………9 (£ )Remuneration paid during the most recent fiscal year to directors, supervisors, president and vice presidents..……………………………………………………………………………………………………………………15 (¤ )Corporate governance …………………………………………………………..…………………………………………… 20 (¥ )CPAs fees………...…..………………………………………………………………………………………………………………41 (¦ )CPA’s information…………………………………………………………………………………………………………………41 (§ ) MSI’s chairman, president, and managers in charge of its finance and accounting operations did not hold any positions within MSI’s independent audit firm or its affiliates in the most recent year.…………………………………………………………………………………………………………………………42 (¨ )Information on Net Change in Shareholding and Net Change in Shares Pledged by Directors, Supervisors, Department Heads, and Shareholders of 10% shareholding or more………………42 (© )Relationship among the Top Ten Shareholders ……………………………………………………………………43 ( )Ownership of Shares in Affiliated Enterprises………………………………………………………………………43 ¤ . Stock subscription ………………………………………………………………….………………………………………………… 44 ( )Capital and shares ……………………………………………..………………………………………………………………… 44 (¢ )Corporate bonds ………………………………………………..………………………………………………………………… 49 (£ )Preferred shares ……………………………………………………………………………………………………………………49 (¤ )Overseas depositary receipts…………………………………………………………………………………………………49 (¥ )Employee stock warrants……………………………………………………………………………………………………… 49 (¦ )Restricted Employee Shares ………………………………………………………………………………………………… 49 (§ )The section on issuance of new shares in connection with mergers or acquisitions or with acquisitions of shares of other companies shall specify the following matters …………………… 49 (¨ )The status of implementation of capital allocation plans……………………………………………………… 49 ¥ . Operation summary…………………………..………………………………………………………………………………………50 ( )Business content ………………………………………………………………………………………………………………..…50 (¢ )Market analysis and the condition of sale and production …………………………………………………… 61 (£ )Employees …………………………………………………………………………………………………………………………… 67 (¤ )Environmental expenditures information………………………………………………………………………………67 (¥ )Employee / employer relation ………………………………………………………………………………………………69 (¦ )Material Contracts…………………………………………………………………………………………………………………71 ¦ . Financial information …………………………………………………………………………………………..……………………72 ( )Five-year Financial Summary ……………………………………..…………………………………………………………72 (¢ )Five-year Financial Analysis……………………………………………………………………………………………………75 (£ )Supervisors’ /Audit Committee’s Report for the most recent year …………………………………………78 (¤ )Financial statements in the most recent year…………………………………………...……………………………78 (¥ )State the financial position of the Company if any insolvency occurs in the Company or affiliates in the most recent year until the date this report is printed …………………………………….……………78 § . Review of Financial Conditions, Financial Performance, and Risk Management…….……………………79 ( )Analysis of Financial Status ……………………………………………………………………………………………………79 (¢ )Analysis of Financial Performance ……………...…………………………………………………………………………80 (£ )Analysis of cash flows ……………………………………………………………………………………………………………81 (¤ ) Major capital expenditures and impact on financial and business in the most recent year……81 (¥ ) Reinvestment in the most recent year …………………………………………………………………………….……81 (¦ )Risk analysis and evaluation in the most recent year and up to the date of the annual report printed…………………………………………………………………..……………………….…..………………………………82 (§ )Other material events ……………………………………………………………….…………………...……………………87 ¨ . Special disclosures ………………………………………………………………..……………………….…..…………………… 88 ( )Related party ………………………………………………………………………………………..…......…..…………………88 ( )Subscription of marketable securities privately in the most recent year and up to the date of the report printed ……………………….…………………………...….………...…………...……………………………………96 ( )Status of MSI Common Shares Acquired, Disposed of, and Held by Subsidiaries……………………96 ( )Other Necessary Supplement………………………………...….………...…………...…………………………………96 ( )Occurrence of events difined in Securities Transaction Law Article 36.2.2 that has great impact on shareholders’ equity or security price in the most recent year and up to the date of the repost printed………………….………………………………...….………...…………...…………………………………… 96 .Letter to Shareholders Dear Shareholders: Driven by the robust recovery in advanced countries in Europe and America, the global economic growth in 2017 was better than expected. The growth momentum in emerging countries has been gradually turning strong as well. PCs, in particular, showed a slight decline in overall shipment throughout 2017 under the impacts of smart phones. The higher-than-ever requirements for the hardware on high-end markets such as that for Gaming and popular Gaming contests, and live-broadcasting platforms, however, continue to drive up the demand of players for medium-to-high-end products. In addition, with various types of PC games introduced and innovated and the continuous enrollment of opponents, the scale of the games and also the Gaming market are gradually expanding. Our company is known for its long-term development of Gaming. Our products meet the needs of users and hence are growing simultaneously with the market. High-end notebooks, desktop computers, motherboards, and graphic cards meant for Gaming, in particular, are leading in the world, with outstanding performance in both income and profits. The rise of cryptocurrency has also driven the growth in the demand for graphics cards and contributed to the robust growth momentum in the overall operation of the company. For 2018, we expect that the global economy will be able to keep the steady growth stream because of the likely stimulation from the tax reduction plan enforced in the US for the economy to heat up. Economic growth will accordingly contribute to the demand for purchasing medium-to-high-end products. Our company will continue to demonstrate its capabilities in research and development, manufacturing, and sales by introducing a complete series of Gaming products in order to create even higher values for the Company and its shareholders. ( ) Operating Performance in 2017 1.Consolidated financial results Unit: NT$ thousands Year 2017 2016 Growth amount Growth rate Item Sales revenue 106,419,905 102,190,503 4,229,402 4.14% Gross profit 15,031,293 14,951,670 79,623 0.53% After -tax profit 4,937,422 4,887,942 49,480 1.01% Basic earnings per share(After -tax) 5.84 5.79 0.05 0.86% (NT$) Diluted earnings per share (After -tax) 5.79 5.73 0.06 1.05% (NT$) 2. Profitability analysis Year Financial Analysis for the Last Two-Years Item 2017 2016 Debt to asset ratio (%) 43.44 46.72 Financial structure(%) Long -term capital to property, plant and 554.91 535.60 equipment(%) Current ratio(%) 206.42 192.11 Solvency(%) Quick ratio(%) 122.23 115.93 Interest earned ratio (times) (%) 178,404.56 226,291.61 Return on assets (%) 9.92 10.08 Profitability Return on shareholders’equity (%) 18.05 18.57 (%) Profit ratio (%) 4.64 4.78 Basic after-tax EPS(NT$) 5.84 5.79 1 3.Research and Development Status As the leading brand in Gaming PCs, MSI believes that it has greater responsibilities and obligations to design products that meet the expectations of both the gamers and the market. Besides getting involved in the front line to interact directly with gamers and consumers, we also listen to and understand their demand and expectations for products, whether it is by forming an alliance with professional gaming teams or cooperating with other