Letter to Shareholders

Dear Shareholders,

Despite many challenges and changes in global economic environment and technology industries in 2016, Lite-On marched ahead like a ship sailing against the wind. With the dedication of all colleagues and optimized steadying operations after the Group's nine in one integration, we not only overcame the challenges, but also showed a positive growth and gained wide recognition from international investors. In 2016, Lite-On focused on Internet of Things (IoT) applications in cloud computing, LED lighting, automotive electronics, biomedical technology, and industrial automation as our five key areas of transforming. The global consolidated revenue amounted to NT$229.57 billion, which represented a yearly growth of 6%. Our net profit after taxes was NT$9.416 billion for the year, which was a record high after the four-in-one integration in 2002. Our annual earnings per share (EPS) reached NT$4.05; a yearly growth of 30%, which was also a record high in the last six years.

Business Performance

Since the integration of group resources and organizations in 2014, Lite-On continued to focus on profitability, sound governance, and improving shareholders' returns as our main operation strategies, and actively worked towards business transformation so that a new light can shine on our 2016 business performance. In the Opto-electronics business, market share of invisible LED application and LED component continued to increase, LED vehicle lighting and street light also experience market expansion, coupled with growth of high-end camera module. In the Information technology business, cloud-computing products showed outstanding growth in revenue, supported by shipments increase of high-end servers and networking power management systems. Meanwhile, the growth was also driven by ongoing market share gains in keyboards, mousse and peripherals and delivery growth in laser models of Multi-Function Peripherals. In the storage business, also benefited greatly from increasing demand from cloud computing and storage related applications.

Lite-On focuses on IoT applications in cloud computing, LED lighting, automotive electronics, biomedical technology, and industrial automation as our five key areas of transformation. Among which, cloud computing, high-end camera modules, and LED/outdoor lighting have entered a mature phase; their combined share of Lite-On's annual total revenue was over 30%. In 2016, Lite-On's LED optoelectronic semiconductor applications were successfully adopted in IoT-relevant solutions, such as vehicle lighting, smart production, wearable devices, smart homes, and smart healthcare. Leotek Lighting Department successfully won the tender for LED street lights in Jordan, which opened market opportunities for energy-saving LED street lights in the Middle East. Skyla® HB1, the fully-automated clinical chemistry analyzer developed by the Medical and Biotech Department received CFDA certification in China. The Department also launched a new product, the skyla® Hi, a POC immunoassay analyzer, which only requires a minimal amount of blood from a fingertip for rapid testing of HbA1c in diabetes patients. In addition, the Department also established the first overseas biotech R&D center in Singapore as a means to develop highly competitive point-of-care products. In order to support client operations, Lite-On and the Export Processing Zone Administration, MOEA jointly launched the first land turnover renewal project in the Nantze Export Processing Zone, in preparation for the expansion of the Automotive Electronics Department and new business development.

Corporate Social Responsibility

Nationally, Lite-On has received CommonWealth Magazine's  CSR Award for ten consecutive years, the Taiwan Corporate Sustainability Award six times, and Global Views Monthly's Excellence in Corporate Social Responsibility Award eight times. Internationally, Lite-On has been listed as a constituent stock on the Dow Jones Sustainability Index (DJSI) for six years in a row anda place on the Morgan Stanley (MSCI) Sustainability Report for two years in a row. After being featured on the A List in the Climate Disclosure Leadership Index (CDLI) from 2014 to 2015, Lite-On has been benchmarked as “Leadership Level” in the Information Technology sector and the Technology Hardware & Equipment industry by Carbon Disclosure Project (CDP) in 2016.  Lite-On also received first place in Taiwan and third place in Asia in the Channel NewsAsia Sustainability Rankings. Through transparent information disclosure, Lite-On was listed in the top 5% of the Corporate Governance Evaluation System of Taiwan Stock Exchange in 2016.

Future Outlook

Lite-On aims to become a centenarian corporation, and the key for long-lasting operation is profitability and values generated by the Corporation. The IT industry is in a transformational new era. The traditional contract manufacturing mode with mass producing a few models is diminishing. The industry and product life cycles have been drastically reduced. Nowadays, IT and traditional industries alike are starting to transform by following the IoT trend; these factors are forcing the electronics industry towards transformation and upgrade.

LIte-On is no exception. The aim for Lite-On's transformation is to increase profitability; this signifies not only changes in the business model or product portfolio, but also an ability to continually generate optimized profitability to ensure Lite-On's sustainability. The adjustments made in the Company's corporate governance were not easy; however, Lite-On's outstanding business results in 2016 have shown us that transformation was the right choice and it is also a reachable goal. Lite-On will stay with this strategy and development direction and continue to integrate the Group's resources to develop a prospective new business and to set the foundation for becoming a centenarian corporation.

In Lite-On's history, we have faced many challenges and difficulties. However, from the process of overcoming these obstacles, we grew stronger and achieved outstanding results. Looking ahead, the global political and economic environment is still filled with uncertainty. Through the "One Lite-On" program, Lite-On has successfully simplified its organization and structure, improved its finances and reduced operational costs, as well as increased its resource utilization, so that the Company may continue to expand its automated production capabilities, optimize its production capacity and efficiency, and  streamline processes for better productivity and performance. Now, we are prepared to face new challenges with improved corporate governance and a cautious but optimistic attitude. In different fields all over the world, innovation of all forms are breaking out like wild fire in order to create a whole new type of smart living for the future. Lite-On is blessed to be a part of this industry revolution. We are currently working on establishing the differentiation between our core businesses and new businesses on a global level through innovative thinking and solid implementation. The aim is to become the top choice as a business partner in providing innovative designs, hardware manufacturing, and all types of application to our clients from all over the world in areas such as lighting, electricity, energy conservation, and smart technologies. We sincerely hope that each and every colleague, client, supplier, and business partner of Lite-On will continue to give us their full support and recognition to work toward a wonderful start in 2017 as well as a successful transformation, and to become part of the team that established Lite-On as a "centenarian corporation".

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