Dear Shareholders,

Since the founding of HTC, our vision has been to combine technology with humanity to unleash the imagination. VIVERSE, HTC’s version of the metaverse, represents the culmination of that vision: an immersive, boundless universe of fantastic new experiences, and a seamless gateway to other online universes.

As the world gradually eased pandemic restrictions over 2022, HTC doubled down on this vision, leveraging the corporate restructure to become a holistic VIVERSE company, with all business areas working towards enabling, expanding, or enhancing the metaverse. With premium products brought to market throughout the year across hardware, software, platforms and content, and new services such as our VIVERSE for Business custom build and support service starting to gain momentum in the market, HTC remains well-positioned to take full advantage of the global trend towards a truly immersive internet.

HTC’s pioneering work on the metaverse, from the soundness of our investments in the fundamental building block technologies of VR, AR, AI, 5G and blockchain to the ability of our more autonomous and focused businesses to execute our strategy, has placed us firmly on the map of key metaverse players, as recognised by global analyst firms as well as within the industry and media, with HTC earning Fast Company acclaim as one of the most innovative augmented and virtual reality companies of 2022.

To ensure the metaverse meets its full potential, HTC is strongly promoting open standards and privacy by design, as well as closer collaboration with partners – including thousands of content developers – to support interoperability, and in 2022 joined the Metaverse Standards Forum to further promulgate our vision, as well as the VRM Consortium for formulating avatar standards.

Across the spectrum of HTC’s portfolio, HTC’s premium products continue to garner high acclaim across media, the industry and customers, with the VIVE Pro 2 gaining a CES innovation award amongst many others in 2022, while the VIVE XR Elite launched in early 2023 earned considerable consumer acclaim and multiple ‘best in show’ awards at Mobile World Congress. Ensuring our businesses maintain such high standards for quality, design and functionality remains a key focus for HTC as the parent company, as well as continuing to drive process optimization, targeted investment, and efficient resource allocation.

Business Operations

HTC’s product design and innovation continues to go from strength to strength, with a robust year of product launches across the full portfolio of hardware, software, platforms and services. Being at the forefront of implementing new and emerging technologies affords HTC the opportunity to create products that extend those technologies into new markets, and that was amply demonstrated by several of the products and services launched over the year. With strategic guidance provided by HTC’s senior management team, the business units are proving well capable of driving their product roadmaps and identifying new revenue streams beyond HTC’s traditional markets.

VIVE Systems

VIVE virtual reality (VR) hardware retains its premium status in the market, having pioneered consumer VR and continually raising the bar on innovation and quality standards. From the high-end PC VR of the VIVE Pro 2 to the compact all-in-one VIVE Focus 3 and the stylish VIVE Flow immersive glasses, VIVE Systems is widely acknowledged as the market leader in this exciting technology with myriad commercial, industrial and consumer applications. Not resting on our laurels, VIVE Systems’ latest launch, in early 2023, is the highly versatile VIVE XR Elite headset that combines mixed reality and virtual reality capabilities into one compact, lightweight and powerful device suitable for a wide range of use cases.

The expansion of enterprise applications for VR remains an exciting area for HTC, with its VR systems adopted by a remarkable range of partner businesses and organizations. HTC is proud that the VIVE Flow was chosen as the VR hardware launch partner for Holoride for in-car passenger entertainment. The VIVE Flow ecosystem was further augmented for enterprise in 2022, with the launch of VIVE Flow for Business and a dedicated controller.

Along with the advanced VR headsets, VIVE Systems continued to deliver cutting edge tracking accessories to market, including the VIVE Wrist Tracker, Facial Tracker and Eye Tracker for the VIVE Focus 3, enabling greater body language realism when interacting with people’s avatars in VR and further expanding the applicability of VR. In addition, VIVE Systems launched VIVE Location Based Service Solutions for arcade and similar settings, and continues to build partnerships on platforms for business processes such as training, as well as healthcare, communications, accessibility and much more.

VIVERSE

VIVERSE is focused on building the ecosystem that will define the fast-emerging, immersive chapter of the internet, creating the platforms and software and driving diversified content through extensive collaboration that will deliver the next generation of experiences across all connected devices, from VR headsets to smartphones. HTC’s vision of the future, the online VIVERSE metaverse world, was first demonstrated at MWC in 2022, providing consumers with an insight into how the metaverse will evolve. HTC also announced the VIVERSE for Business service, a modular approach to building high quality metaverse service content to bring innovative activities and business models to users, with leading UAE telecoms group e& (formerly Etisalat) launching their metaverse in 2022, designed and built by HTC.

The VIVEPORT VR app marketplace saw continued growth in 2022, with the business expanding its global content and market collaborations to deliver diverse consumer and enterprise experiences. These included partnerships with Bandai Namco Pictures on the ‘Birdie Wing’ content, and China Mobile MIGU on a joint entertainment VR marketplace that maximizes both parties’ strengths in content and technology, to name but a few. Viveport hosted multiple events over the year, including the Tribeca Online Immersive on the Museum of Other Realities. Moreover, support was added for the General Standard for XR (GSXR) interoperability standard, which will attract more content developers to the Viveport platform.

G REIGNS

As 5G gains momentum around the world, G REIGNS aims to identify new opportunities to encourage the uptake of 5G. Leveraging over 20 years of design experience for communications software, G REIGNS utilizes its advanced O-RAN 5G networking technologies to deliver premium hardware and software service solutions for enterprise, telecom companies and consumers.

In 2022, G REIGNS launched the REIGN CORE portable private 5G network for enterprise that allows businesses to quickly and easily deploy a private 5G network for office and industrial applications, lowering the threshold for digital transformation. G REIGNS also partnered with Lumen on the Private 5G Experience Center in the USA to demonstrate 5G-enabled 3D visualization and 5G Cloud VR, taking advantage of 5G’s greater speed and bandwidth to showcase network-intensive applications.

HTC Smart Devices

HTC’s Smart Devices business unit encompasses HTC’s smartphone business as well as ground-breaking intelligent products that serve new markets or reimagine current processes.

In 2022, HTC launched the HTC Desire 22 pro, designed for immersive experiences in a world where the physical, digital and virtual interconnect. Built into the phone is the ability to download and run 2D and 3D content on extended reality companion devices such as the VIVE Flow immersive glasses, enabling users to enjoy exploring a richer version of the metaverse. The HTC Desire 22 pro battery supports fast and wireless charging, and even reverse charging for companion devices.

HTC Smart Devices also launched the HTC VIVE Mars CamTrack, a virtual production solution aimed at the film and television industry and commercial studios. HTC VIVE Mars CamTrack provides camera tracking solutions for the latest virtual production workflow, integrating the physical camera and actors’ performances into the virtual world, and compositing images to present the final scene. This not only helps actors interact more naturally with their environment and allows directors and photographers to view the composition, but also significantly reduces post-production cost and time. HTC VIVE Mars CamTrack solution offers portability and simplicity of installation, and lowers barriers to entry into film production. Launched in August 2022, the HTC VIVE Mars CamTrack is revolutionizing film production in studios around the world.

VIVE Arts

VIVE Arts is a global initiative founded in 2016 to enhance artistic and cultural appreciation through immersive technologies, democratize creativity and make our cultural heritage more accessible. 2022 saw several major collaborations with pioneering artists and established institutions, including at the Serpentine Galleries in London with Dominique Gonzalez-Foerster and at the Venice Biennale with Wu Tsang, at Art Basel in Hong Kong with Albert Oehlen and Wu Tsang, and at Triennale di Milano with a unique VR exploration.

VIVE Arts has also been further developing its business model, with revenue streams arising from the licensing and distribution of digital content and the proceeds of NFT sales to support its cultural collaboration activities. Three highly acclaimed large-scale location-based VR experiences were launched with partners: the Eternal Notre-Dame, Horizon of Khufu, and the extraordinary interactive dance experience Le Bal de Paris, while several NFT artworks were launched on the VIVE Arts NFT Marketplace, generating greater awareness of the work of VIVE Arts and of VR among a non-traditional audience for HTC.

VIVE ORIGINALS

VIVE ORIGINALS is an award-winning original XR content production team for VR and for the metaverse, utilizing its core technology competences in volumetric capture, blockchain and XR to explore the development of film, arts and music in the metaverse. VIVE ORIGINALS has produced original VR 360 films such as The Deserted, 5X1, INORI, and the VR animation, The Sick Rose, all of which were selected for renowned film festivals such as the Venice International Film Festival.

Over the past two years, the team's focus has been on BEATDAY, the world's first holographic music and entertainment metaverse platform based on blockchain and volumetric capture, which has hosted a series of metaverse concerts, and is about to release its first immersive volumetric theatrical experience, Light the Night 2700: Redhat Killer. Revenue streams arise from broadcast licensing and from exhibition and art collection transactions, and now also from brands advertising and tickets within BEATDAY.

DeepQ

DeepQ develops precision personalized medical products and services to reduce costs and improve the efficacy of healthcare. Over the last three years, DeepQ has made important contributions to front-line pandemic information collation and dissemination, creating digital tools in collaboration with the Taiwan CDC such as the Taiwan V-Watch Vaccination Reporting System and the 1922 SMS Contact Tracing System. The Disease Control Butler in particular attracted over 10 million users, proving an effective conduit for conveying government policy on COVID-19. DeepQ has also created healthcare Linebots for hospitals that provide telemedicine consultations to patients.

DeepQ also focuses on bringing advanced technologies to medical care. The DeepQ AI Platform, launched in 2021, accelerates AI model training for doctors in an optimized training environment; in 2022, the cloud version was upgraded with new training, management and reporting functions to expedite AI model deployments.

Financial Performance

HTC’s operational performance has continued to improve year on year, with a gross margin of 39.2%, up from 31.1% in 2021. This is primarily due to HTC’s intensive focus on optimizing our processes, reducing costs and maintaining direction around the Company’s central vision of VIVERSE, while continuing to make strategic investments in the key building block technologies that enable the metaverse. In 2022, HTC saw revenues of NT$4.41 billion, with an operating loss of NT$4.40 billion. Net loss attributable to owners of the parent was NT$3.41 billion, or an EPS of -NT$4.13.

With business models now clearly laid out, and several divisions having entered the performance stage and starting to show good results, we firmly believe we are going in the right direction for the future.

Environment, Social and Governance (ESG)

HTC is committed to the highest standard of social care, environmental protection, and ethical integrity. We fully respect human rights and workplace rights. HTC is committed to cultivating talent as a corporate responsibility priority, and creating a workplace that is diverse, challenging, dynamic and positive.

In 2022, the ESG Office focused on key sustainability projects such as "Pathway to Net-Zero", the “Task Force on Climate-Related Financial Disclosures (TCFD)”, and the “Sustainability Accounting Standards Board (SASB)", and continued to participate in major worldwide ESG initiatives and ratings such as EcoVadis, the FTSE ESG Index, TCFD, and the Taiwan Corporate Sustainability Awards.

HTC takes energy saving, waste reduction and resource reuse into consideration from the very first stage of product design. For example, all power supply devices used for HTC products must comply with – and often far exceed – the major international energy consumption specifications. A comprehensive eco-evaluation is conducted through product disassembly and material simulation, and with third-party verification, to ensure our material recycling rate complies with EU WEEE regulations. HTC will continue to follow the principles of reducing weight and increasing recycling rates, and will design new products with a view to the circular economy.

HTC’s sustainability efforts are being recognized globally. In 2022, HTC was honored to become a constituent of the FTSE4Good Index Series, a subset of the renowned FTSE ESG Index. Moreover, HTC improved its EcoVadis rating in 2022 from bronze to silver, demonstrating our improvement in the four key sustainability themes of Environment, Labor and Human Rights, Ethics, and Sustainable Procurement. HTC also participated in the 2022 TCSA and won the "Silver Grade of ESG Report ".

In addition, HTC continues to participate in the annual CDP rating. In the 2022 Supplier Engagement Rating (SER) report, HTC received leadership level (A-), while in the 2022 Climate Change report released earlier by CDP, HTC continued to achieve management level (B). HTC is also committed to implementing a sustainable value chain and became a CDP Supply Chain Member at the beginning of 2023, joining the ranks of over 200 major purchasing organizations to drive environmental action through value chains. At the same time, HTC became a TCFD supporter at the end of the year, and published a TCFD independent report for the first time in 2023.

We are forging HTC's path to net zero. We are aiming to implement fully paperless, digitalized, and optimized internal operations processes by the end of 2023, through comprehensively reviewing and optimizing every internal operation process. Our "Carbon Management Platform" aims for comprehensive implementation of corporate carbon emissions management and carbon reduction practices, while an internal carbon pricing mechanism will help achieve the important direction of long-term sustainability: Net-Zero. This is not only a commitment to promote global sustainability, but also aims to align employees’ mindsets and the Company's culture to our ESG goals.

With all the outstanding innovation emerging from HTC’s business divisions as our vision of VIVERSE becomes a global reality, the Company is well placed to again play a leading role in the future of technology, and we would like to express our sincere appreciation to our shareholders for their faith in our vision.

HTC Corporation

Chairwoman and CEO

Cher Wang