Letter to Shareholders

Letter to Shareholders

Letter to Shareholders

Dear Shareholders,

 

In 2017, LITE-ON continued its effort to transform the group by focusing on IoT applications in cloud computing, LED and lighting, automotive electronics, biotech, and industrial automation as its five key areas of transformation. In particular, cloud applications, LED and lighting, and consumer electronics contributed to close to 40% of the revenue in 2017. The percentage reflected LITE-ON's success in developing new business and transforming itself in recent years. LITE-ON's global consolidated revenue amounted to NT$214.564 billion in the year. The net profit after taxes was NT$2.629 billion after a onetime goodwill and equipment impairment of NT$6.98 billion recognized for the Mobile Mechanics business and inventory adjustments for photonics products. The EPS was NT$1.13 for the year. The impairment of assets was accounting treatment in compliance with IAS 36. No actual cash outflow occurred, and therefore the impairment had no impact on the overall working capital. Future directions for the Mobile Mechanics SBG include process optimization on an ongoing basis and integration of product strategies and product lines in order to improve efficiency and move to smaller but more sophisticated operations and profit models, thereby increasing long term gains for shareholders, customers, and employees.

 

Business Performance

Since the integration of group resources and organizations in 2014, LITE-ON has been focusing on profitability, sound governance, and improving shareholders' returns as our main operation strategies and active effort to transform our business. In 2017, more resources were invested in market segments showing a stronger growth momentum. Cloud computing, LED components, outdoor/auto lighting, auto electronics, AI smart home systems, and gaming markets all returned positive results. In the opto-electronics business, invisible LED application gained market share, and LED component reported impressive revenue growth. LED vehicle lighting and street lighting continued to grow. In the information technology business, the power supply segment's revenue growth was fueled by growth in high-end cloud servers, networking power management systems, AI smart home systems, game consoles and other power-related products. Meanwhile, market shares in keyboard, mouse and other computer peripherals rose, and the gaming computer application business continued to grow. Furthermore, regarding smart automobile electronic applications, products that have been successfully launched included T-Box telematics systems, V2X, windshield hub, advanced driver-assistance systems (ADAS), auto camera modules, auto wireless charging systems, and electric vehicle charging stations.

 

On the whole, manufacturers around the world in recent years have been facing challenges in China's rising prominence in the global value chain and Southeast Asian countries' taking over labor intensive industries from China. These challenges, combined with factors such as fast technological revolution in industries, production technology upgrades, threat of climate change, and carbon emission control, are turning the global value chain from globalization to localization. As more and more clients respond to the trend, LITE-ON started investing heavily in a global network in 2017. For example, LITE-ON increased production capacity at Kaohsiung Operations Center, China Research and Development Center, and several sites, and made active efforts to enter the Middle East, India, and Southeast Asia. LITE-ON, through a joint venture with Tsinghua Unigroup, has entered into China's storage market. Meanwhile, more investment was made in automated production, digital management, and advanced manufacturing. LITE-ON continues to put efforts in optimizing manufacturing process in 2018. By becoming more competitive in intelligent manufacturing, LITE-ON secures its market leading advantage in mass production.

 

Corporate Social Responsibility

We at LITE-ON believe that business activities must be sustainable and a sustainable society and a sustainable environment are part of the corporate social responsibility. Therefore, we are always exploring opportunities and fields in which the CSER Code of Conduct can be implemented. We adopt the standards and regulations under the United Nations' sustainable development goals (SDGs) as the assessment guidelines. LITE-ON, at the beginning of 2018, was included in the first Top 100 Global Technology Companies compiled by Thomson Reuters. The eight pillars of performance were financial, management and investor confidence, risk and resilience, legal compliance, innovation, people and social responsibility, and environmental impact, and reputation. Nationally, LITE-ON has received CommonWealth Magazine's CSR Award for eleven consecutive years and a TCSA Gold Award in the Corporate Sustainability Report Award category four times. Internationally, LITE-ON has been listed as a constituent stock on the Dow Jones Sustainability Index (DJSI) for seven years in a row and a place on the Morgan Stanley (MSCI) Sustainability Report for four years in a row.

 

Future Outlook

For LITE-ON, 2017 was a year of overcoming challenges, be them in restructuring of the Portable Image Device SBG or in starting new businesses in the market. Nevertheless, LITE-ON has been a team that tackles challenges straight on and tries to find better solutions, make constructive decisions, and ultimately overcome all challenges. This is a necessary process for a company looking to transform and adjust itself. Going forward into 2018, LITE-ON plans to transfer some of the key business operations and assets from the Portable Image Device SBG to LuxVisions Innovation Limited. The business operations to be transferred are the operations and assets under the camera module department, including inventory, machines and equipment, teams, technologies and intellectual property rights, client/supplier relationships, and product warranty liabilities. The price of the transaction is currently set at US$360 million plus rights to a 10% stake in LuxVisions Innovation Limited. The transaction will provide the camera module department with the resources it needs for further growth. Meanwhile, LITE-ON continues to focus on developing new businesses and transforming itself to specialize in cloud computing, LED components and outdoor/auto lighting, automotive electronics, smart healthcare, and industrial automation.

 

Standing at the beginning of a new year, LITE-ON intends to accelerate its effort to make the company more competitive as a whole. As the global value chain moves up the next level, LITE-ON takes an entrepreneurial approach to self-transformation and accelerates quickly to prove its strength in overtaking competitors. Under One LITE-ON, we strive for profitable growth and operational excellence in the hope to win continuing support and recognition from our colleagues, clients, suppliers, and business partners.

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