Letter to Shareholders

Dear Shareholders,

HTC had an excellent year in 2021, with the launch of focused, highly acclaimed products, the full implementation of the corporate restructure, and robust improvement in operational performance.

Against a backdrop of prolonged market disruption caused by the ongoing pandemic, HTC maintained its engineering and design edge, delivering high quality hardware, software, platforms and services to markets including enterprise, education, arts, entertainment and healthcare. In particular, with business and leisure travel still restricted, practices adopted or accelerated during the first year of the pandemic largely sustained over 2021, and HTC saw virtual reality embraced by numerous industries and organizations to enhance their business processes.

HTC is encouraged by the increasing recognition of its strategy as driving the future of the industry. In early 2018, HTC coalesced the Company around a central, overarching vision of VIVE Reality, whereby merging technology with humanity to unleash the imagination will create a world where technology fades into the background and experiences come the forefront. This vision is today being described as the ‘metaverse’. HTC’s version of the metaverse is VIVERSE, an immersive, boundless universe of fantastic new experiences, and a seamless gateway to other content universes created in collaboration with partners.

HTC defined the key building block technologies underpinning this new world as VR/AR, artificial intelligence, blockchain, and high-speed connectivity such as 5G, and has made significant strategic investments in these areas over the last seven years. These investments have increasingly borne fruit, and the industry now largely acknowledges these technologies as fundamental to maximizing the potential of the metaverse.

The corporate restructuring was successfully completed in early 2021, with the seven business units defining their own unique identity and a clear product strategy. HTC acts as an umbrella organization, providing corporate function support such as human resource management, legal, accounting, IT and marketing, and as an accelerator, providing strategic and investment guidance. While all of HTC’s business units have a distinct direction and focus markets, they all ladder up to HTC’s central vision, with their product portfolios and roadmap designed to support access to VIVERSE, or its expansion or enhancement.

HTC is already seeing value being created in this strategy, with increased resource optimization and accountability, and anticipates greater progress in the years ahead. The resulting innovation drive positions HTC well in its transition to a complete metaverse company.

Business Operations

HTC’s business units demonstrated the depth and breadth of their innovation over 2021, with a wide range of products, services, and collaborations undertaken over the year. The launch of VIVERSE in early 2022 represents a crystallization of our product strategy, with almost all products and services contributing to VIVERSE in some way. Moreover, the large bandwidth and ultra-low latency of the 5G connectivity standard provides ideal conditions for VIVERSE, so HTC sees the continued global rollout of 5G as an accelerant for this next generation of the internet.

VIVE Systems

VIVE Systems has had another stellar year, launching two new headsets at the VIVECON online industry event on VR in May 2021: the VIVE Pro 2 premium PC VR headset boasting the highest resolution graphics and an innovative lens system for gamers and professionals requiring the highest VR performance and precision tracking, while the VIVE Focus 3 all-in-one headset for enterprise features 5K resolution graphics, tight head-tracking, active cooling and a 120-degree field of view, substantially better than consumer all-in-one VR headsets on the market. Additionally, VIVE Systems marketed the VIVE Flow immersive glasses, a new, sleek form factor companion device.

VIVE Systems also focused on accessories over 2021 to enhance the VR ecosystem, including launching the smaller, lighter successor to the highly popular VIVE Tracker, as well as new wrist and facial trackers to bring greater realism in the virtual world. The VIVE Focus 3 has been made more attractive for enterprise with the addition of a charging case with auto-pairing and multi-battery charging dock.

VIVE Systems continues to lead the industry in premium hardware, as clearly illustrated by the VIVE Pro 2 winning a CES Innovation Award at the Consumer Electronics Show in January 2022 and the VIVE Focus 3 inspiring Fast Company to name HTC as one of the “10 most innovative augmented and virtual reality companies of 2022”.

VIVERSE

The VIVERSE business unit (formerly HTC Content & Platforms) is instrumental in the creation of HTC’s content ecosystem in the metaverse era. Through its advanced content, software and platform technologies, VIVERSE has maintained steady growth in both VR content and platform on its VIVEPORT platform, leveraging its virtual exhibition platform for enterprise use cases, and continues to build strong content and hardware partnerships to engage more end-users and accelerate the expansion of the VR ecosystem.

VIVEPORT has established a library of 3,200+ titles across a variety of genres. In 2021, it launched the Infinity Vista subscription plan for smart glasses such as the new VIVE Flow immersive glasses. VIVERSE also made its first investment in content IP by co-producing the anime, BIRDIE WING, the world's first original anime featuring women's golf, an important milestone in HTC’s VIVERSE strategy.

VIVEPORT’s virtual exhibition platform saw several key executions in 2021, with Japan’s Shu Yamamoto’s “Step into Cat Art” online retrospective, and Yokohama’s 10th Asia Smart City conference being staged on the platform.

The VIVERSE team also created the VIVE Business suite of VR tools in 2021 to support VIVE Systems enterprise hardware, bringing the power of virtual reality to organizations large and small. With a seamless set-up, easy management and certified privacy and data security, VIVE Business supports a wide range of use cases including training/simulation, collaboration, design and visualization, entertainment, and sales and marketing.

G Reigns

G Reigns (formerly HTC 5G Solutions) has primarily focused on the burgeoning 5G high speed connectivity, with a clear objective to provide total solutions, such as companion apps and devices, cross-platform SDKs and immersive terminals, to business partners and 5G phone users to enlarge VIVERSE.

G Reigns created a unique, out of the box private 5G network for enterprise in an easy to set up, compact package for a wide range of applications that can leverage the high speed and greater bandwidth of 5G. This includes private networks for office and industrial applications, XR applications, smart surveillance, smart transportation and more. G Reigns also created a complete virtual production solution for film producers, boasting high accuracy tracking system at a competitive price.

The G Reigns team also created the VIVE Flow immersive glasses, a first of its kind companion device for matched smartphones that brings a truly immersive experience in a highly portable and very stylish format. With 1600x1600 resolution per eye and 6+n degrees of freedom in light glasses weighing just 189g, the VIVE Flow sets the standard for immersive glasses with an intelligent distributed battery design for greater comfort.

HTC Smartphones and Connected Devices

The HTC Smartphones and Connected Devices business unit is focused on creating devices that take full advantage of the latest technologies while supporting HTC’s VIVERSE vision. In 2021, this included the launch of the HTC Desire 21 Pro 5G phone, bringing 5G to the mid-tier smartphone range in targeted markets. Along with high speed 5G support, the HTC Desire 21 Pro 5G is the first HTC phone with ARCore support, certified by Google and features a 5000mAh battery and 6.7” FHD+ 90Hz display.

HTC continues to evaluate strategic markets and technologies for its smartphones, to ensure that devices have rich feature sets for the target segments and markets and bring a degree of differentiation to market.

VIVE Arts

VIVE Arts continued its mission to enhance cultural appreciation through immersive technology, democratize creativity and preserve our cultural heritage for the world, completing many art, film and museum projects in 2021, including the ‘Curious Alice’ VR experience with London’s Victoria & Albert museum in May that has welcomed more than 165,000 visitors.

VIVE Arts’ aim to enable artists to achieve their creative vision through digital innovation saw the staging of VR installations in ground-breaking exhibitions by Chinese artists Cao Fei and Cai Guo-Qiang as well as Australian film director and speculative artist Liam Young in Beijing, Italian artist Carola Bonfili at the Ludwig Museum in Budapest, Danish artist Jakob Steensen at LUMA Arles in France, and Marco Brambilla at the Perez Museum Miami.

VIVE Arts also launched a new global art trading platform, marking the next stage in VIVE Arts’ evolution to build a complete ecosystem for digital art. This platform supports artists and institutions to create, exhibit and sell ground-breaking artworks and experiences, reaching global audiences both physically and online. The inaugural sale offers NFTs of iconic Art Nouveau masterpieces by renowned Czech artist Alphonse Mucha, in collaboration with the Mucha Foundation and in parallel with a physical exhibition of his work.

VIVE Originals

As a front-end content production team at HTC, VIVE Originals has been dedicated to the development of authentic intellectual properties, and the co-production and distribution of original VR film, art, animation, music, culture and entertainment content. Alongside their continued work on XR content production, VIVE Originals also held two beta-test concerts with Bisiugroup and THE RAPPERS, arousing great interest from global outlets, such as Variety, and staged the first VR Holo-concert called ‘BEATDAY – The Beginning – Mini VR Concert’, which was selected by the 2022 SXSW Film Festival in the XR Experience Spotlight section. Moreover, their VR animation, ‘The Sick Rose’, was selected for the Venice VR Expanded section of the 78th Venice International Film Festival.

VIVE Originals also launched BEATDAY in 2021, a music and entertainment platform in the metaverse that applies volumetric capture, CG animation and more that document the full details of artists’ body movements and facial expression. The BEATDAY platform implements blockchain technology and launched its exclusive NFT project, constructing an economic system in the metaverse across diverse devices.

DeepQ

The DeepQ business remained laser focused on its work in promoting healthcare in 2021. In particular, it continued its important work on pandemic information collation and dissemination over 2021, collaborating with the Taiwan CDC on numerous projects within the Line Bot of Disease Control Butler (DCB), which has played an important role in the digital frontline of pandemic prevention and boasted over 10 million users by year end. The Taiwan V-Watch Vaccination Reporting System made post-vaccination health status reporting simple, and the 1922 SMS Contact Tracing System worked by collating information through the scanning of QR code in stores and establishments.

DeepQ also launched the cloud version of the DeepQ AI Platform, a solution that enables individual doctors or small number project teams to easily complete AI model development without investing high hardware costs.

Financial Performance

The ongoing pandemic continued to impact world business throughout 2021; however, HTC has sustained innovation and production levels in all its facilities. While much of our industry experienced supply shortages over the year, HTC has implemented a program of aggressive management of supply lead times, shipping schedules and inventory levels to mitigate material impact from shortages.

Overall, HTC’s operating performance has improved, with sequential increases in gross margin over the last 16 quarters, FY2021 gross margin reached 31%. This has contributed to a continuing reduction in operating margin deficits. As a result, HTC saw revenues over the year of NTD 5.25 billion, with a gross profit of NTD 1.64 billion, and net loss attributable to owners of the parent was NTD 3.07 billion. Moreover, focused resource allocation and diligent cost management has enabled HTC to reduce year-on-year operational expenses by 28% while still delivering premium products and solutions to market and ensuring appropriate investment in the technologies and talent that align with our strategic direction, positioning HTC well for the future.

Environment, Social and Governance

Environment, Social and Governance (ESG) issues have risen to prominence over the last few years and are now a significant consideration in investment decisions. As a global citizen, HTC is committed to these principles, and has transformed the original corporate social responsibility committee into the ESG committee, chaired by the Chairwoman. HTC also appointed its first Chief Sustainability Officer in Senior VP Madeline Chen, who will lead the charge for sustainability in HTC’s management, design, product, and manufacturing processes as well as in the supply chain, to contribute more actively to HTC’s environmental protection efforts, social responsibility and corporate governance. In order to achieve the long-term goal of sustainable development through continuous improvement, the ESG committee is working with all HTC colleagues to understand how their work can contribute to these objectives.

HTC strives to increase environmental sustainability across its operations, improving manufacturing processes and quality standards as well as seeking areas to reduce emissions and increase power efficiency. This year, HTC attained management level (B- grade) in the climate change rating of the Carbon Disclosure Project (CDP). Waste reduction and resource recycling efforts continued to show results, with HTC’s waste recycling rate significantly increased over the last ten years, by 87%.

As the COVID-19 pandemic continued to spread and mutate over 2021, HTC has maintained prevention and work flexibility measures in our facilities around the world, in line with or even exceeding local government guidance, and these have ensured that HTC’s world class innovation has continued at full speed without risking lives.

Over the past seven years, HTC has transformed itself from its hardware-centric origins to a well-rounded enterprise delivering premium hardware, software, platforms and solutions serving business customers and consumers around the world. As the metaverse takes shape, HTC would like to sincerely thank shareholders for their faith in the Company over the year.

HTC Corporation

Chairwoman and CEO

Cher Wang

Cher Wang
Chairwoman

HT Cho
Director

Wen-Chi Chen
Director

David Bruce Yoffie
Director

Chen-Kuo Lin
Independent Director

Michael C. Lu
Independent Director

Vincent Thai
Independent Director

Daniel Wu (Yeong-Cheng Wu)
Member of the Compensation Committee