Alpha : 2023 Annual Report

Stock Code: 3380

Alpha Networks Inc.

2023

ANNUAL REPORT

Taiwan Stock Exchange Market Observation Post System: http://mops.twse.com.tw

Alpha annual report is available at http: //www.alphanetworks.com

Printed on April 2, 2024

1. Company's Spokesperson

	Spokesperson	Deputy Spokesperson
Name:	Kathy Chen	Neal Peng
Title:	CFO	Deputy Director
Tel:	[phone]	[phone]
Email:	[e-mail]	[e-mail]

2. Contact Information of the Head Office, Branch Offices and Factories

Office	Address	Telephone
Head Office / Factory	No. 8, Li-Hsin 7th Rd., Hsinchu Science Park, Hsinchu 300094,	[phone]
Taiwan, R.O.C.
Dongguan (China) /	Xingang Road,Xin'an Area, Chang An, Dongguan City	[phone]
Factory	Guangdong Province, China
Changshu (China) /	No.6, Yintong Road, National New & Hi-Tech Industrial	[phone]
Factory	Development Zone, Changshu, Jiangsu Province, China
Vietnam / Factory	Lot CN03, Dong Van 4 Industrial Park, Dai Cuong Commune,	[phone]
Kim Bang District, Ha Nam Province, Vietnam

1. Stock Transfer Handling Agency: Agent: China Trust Commercial Bank
   Address: 5F, 83 Chung-Ching South Road, Sec. 1, Taipei, Taiwan
   Website: www.ctbcbank.com
   Tel: + 886-2-6636-5566
2. Name of the CPAs and CPA Firm Auditing the Financial Statements in the Most Recent Year: CPAs: Hai-Ning,Huang and Wei Ming Shih.
   CPA Firm: KPMG
   Address: 68F, TAIPEI 101 TOWER, No.7, Sec.5, Xinyi Road, Taipei, 110, Taiwan, R.O.C.

Website: www.kpmg.com.tw
Tel: [phone]	[phone]

1. Overseas Security Exchange Listing: N.A.
2. Company Website: http://www.alphanetworks.com

	Table of Contents
Letter to Shareholders	1
Company Profile	6
I. Founding Date	6
II. Corporate History	6
Corporate Governance	11
I. Organization Structure:	11
II.	Information Regarding Directors, President, Vice President, Associate Vice Presidents and
	Managers of Departments and Divisions	13
III. Compensation of Directors, Supervisors, President and Vice President	25
IV. Implementation of Corporate Governance	28
V. Information on the Professional Fees of the Attesting CPAs	74
VI. Information on Replacement of CPAs	74
VII. Has Any of the Company's Chairperson, President, or Managers Responsible for Finance or
	Accounting Duties Served in the Company's CPA Firm or Its Affiliated Company within the
	Most Recent Year	75
VIII. The Status of Equity Transfer or Changes to Equity Pledge of Directors, Managers or
	Shareholders Holding More than 10% of the Company's Shares in the Most Recent Year Up
	to the Publication Date of this Report	75
IX. Information of Relationships between Top 10 Shareholders Who are Related Parties, Spouses
	or Relatives within the Second Degree of Kinship Relationship	77
X. Shareholdings and Joint Shareholdings of Businesses Invested by the Company, Directors,
	Supervisors, Executive Officers and Companies Directly or Indirectly Controlled by the
	Company	77
Capital and Shares	78
I. Capital and Shares	78
II.	Corporate Bonds Handling Status	83
III.	Preferred Shares Handling Status	83
IV.	Global Depository Receipts Handling Status	83
V.	Employee Stock Option Handling Status	83
VI. Issuance of New Shares in connection with the Merger or Acquisition of other Corporations....	83
VII. Implementation Status of Funds	83
Overview of Operations	84
I.	Description of Business	84
II.	Overview on Market and Production	92
III. Employee Information in the Recent Two Years up to the Publication Date of this Annual
	Report	97
IV. Environmental Protection Expenditures	97
V.	Labor Relationships	98
VI.	Cyber Security Management Act	99

VII.Material Contracts	101
Financial Highlights	102
I.	Most Recent Five years Condensed Financial Information	102
II.	Financial Analysis for the Most Recent Five Years	106
III.	The 2022 Review Report of the Audit Committee	109
IV.	2022 Consolidated Financial Statements with Independent Auditors' Report	109
V.	2022 Parent Company only Financial Statements with Independent Auditors' Report	109
VI. Any Financial Difficulties Experienced by the Company and its Affiliates during the Most
	Recent Year up to the Publication Date of this Report Need to be Stated as well as the Impact
	on the Company's Financial Position Need to be Outlined	109
Review and Analysis of Financial Position and Financial Performance and Risk Management	110
I.	Financial Position	110
II.	Financial Performance	110
III. Cash Flow	111
IV. Material Expenditures in the Most Recent Year and Impact on the Company's Finances and
	Operations	111
V.	Investment Policy for the Most Recent Fiscal Year, the Main Reasons for the Profits/Losses
	Generated thereby, the Improvement Plan and Investment Plans for the Coming Year	111
VI. Risk Management	111
VII.Matters for Analysis and Assessment for Risks	113
VIII.Other Material Issues	117
Special Notes	118
I.	Information about the Company's Affiliates	118
II.	Privately Placement Securities in the Most Recent Year up to the Publication Date of this
	Annual Report	124
III. Holding or Disposition of the Company's Shares by Subsidiaries in the Most Recent Year up
	to the Publication Date of this Annual Report	124
IV. Other Necessary Supplement	124

1. Any Events in the Most Recent Year up to the Publication Date of this Annual Report that Had Substantial Impact on the Shareholders' Equity or Securities Prices as Prescribed in Item 3

Paragraph 2 of Article 36 of the Securities and Exchange Act

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Letter to Shareholders

Dear Shareholders,

1. Business Results in 2023
2. 1. Implementation Results of Business Plan in 2023
      Reviewing the past year, the supply chain shortage issue was resolved in the second half of 2023. However, our Company experienced a decline starting in the second half of 2023 due to rapid adjustments in clients' inventories. As a result, the overall revenue performance for the year was lower compared with 2022. Despite the revenue decline, the gross profit margin only showed a slight decrease due to adjustments in the product portfolio. Additionally, we continued to achieve success in developing and expanding with new products and customers. We also efficiently planned factory capacity by merging the Dongguan and Changshu factories. Some products affected by tariffs were relocated to Vietnam. These actions were taken to improve our resilience and prepare for growth amidst ongoing economic instability.
      Looking ahead to this year, despite facing uncertainties such as customer inventory adjustment, delayed order demand, and the launch of new business ventures in enterprise networking, product shipment momentum is expected to recover from the previous year, driven by the momentum of key products such as network switches, Wi-Fi 6, and

5G. We are optimistic but cautious about this year's operating performance, believing that we will regain growth momentum with the Company's strong R&D capabilities.

1. Budget Implementation Status
   The Company did not disclose its financial forecast for 2023.

1. Analysis of Financial Results and Profitability
   In 2023, the consolidated revenue was NT$ 28,272 million, which was 15.9% lower compared with the number recorded in the last year; the consolidated gross margin was 18.4%, which was about 0.2% lower than the previous year's 18.6%; the consolidated net operating profit was NT$829 million; the net profit attributable to the owners of the parent company was NT$548 million, equivalent to NT$1.01 per share.

(IV) Research and Development Status

The Company has complete network communication software/hardware technologies, and its research and development focuses in 2023 were as follows:

1. Despite the challenging business environment in the second half of 2023, Alpha Network continued to invest in research and development and made significant progress on patent applications.

(1) 5G：

Focuses on the development of Wireless Radio Unit (RU), Distributed Unit (DU) and Centralized Unit (CU), Sub- 6G, Millimeter Wave 5G CPE of base station for private 5G network, 5G Small Cell devices, along with Wi-Fi6/Wi-Fi6E/Wi-Fi 7 wireless network technology to enter into the enterprise and family markets. The 5G Smart Factory project, in collaboration with the Industrial Bureau, has successfully concluded this year, setting the stage for future instances of 5G network deployments.

1. 6G：

Focuses on the development of essential user terminal modules for Low Earth orbit satellite ground communications equipment. These modules include antenna array modules, frequency conversion modules, WiFi modules, radar covers, and heat dissipation modules. The National Low Earth Orbit Satellite Ground Receiver

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Project, in cooperation with the Ministry of Economy, was successfully completed this fiscal year, providing valuable experience for future efforts in the field of low earth orbit satellites.

1. 1. The Company continually developing telecommunication-grade switches and industry-grade switches due to the trend in 5Gand IoT.
   2. The Company developed 800G high-speed Ethernet switches for data centers, and did tests and simulation of signal and power integrity engineering development of high-speed network.
   3. The Company integrated 24GHz millimeter-wave radar into home monitoring equipment for motion detection; in addition, edge computing was introduced to improve the accuracy of image recognition.
   4. The Company developed side blind spot detection radar, AI Dashcams above L3, Radar+AVM Sensor Fusion and industrial embedded radars that comply with UN regulations UN/ECE R151.
2. Summary of Business Plan for the Year
3. 1. Business Direction
   2. 1. Continuously commit to group resource integration for the synergy effect.
      2. Improve the Company's service quality and strengthen the core competitive advantages.
      3. Continue to develop strategic partnership with customers and suppliers.
      4. Accelerate the development and mass production schedule of new products, contributing to the Company's profitability and competitiveness.
      5. Continue to seek suitable strategic partners to expand the Company's territory.

1. Sales Volume Forecast and Basis
   The sales forecast and planning of the Company's business entities this year are as follows:
   1. LAN/MAN BU
   To continuously develop high-speed Ethernet network switches for the data center, enterprise, telecommunications, and industrial markets. The continuous surge in data traffic demand within data centers has propelled the widespread adoption of 100G switches and boosted the penetration of 400G switches. Furthermore, the introduction of the IEEE 800G technical standard has catalyzed the uptake of 800G high-speed switches as the forthcoming solution for data centers. We have also partnered with a software systems provider in the United States to provide integrated network management services for 400G and 10G/100G MDU product systems to telecommunications operators in the United States. This collaboration includes high-speed Ethernet network switches and MDU integration for data centers and telecommunications, facilitating the creation of a more comprehensive network service.
   Additionally, the advancement of Wi-Fi technology and speed has increased the demand for Multi-Gigabit switches. The upload interface bandwidth has also increased accordingly. In addition, chip manufacturers have developed high-densityMulti-Gigabit PHY chips, resulting in a more streamlined circuit design. In addition, the integration of high-power Power over Ethernet (PoE++) technology is simplifying Wi-Fi deployment and consequently driving the growth rate of high-power PoE switches. The Company consistently develops telecommunications-grade 5G xHaul transmission switches, OLT cable terminal equipment, and telecommunications core network switches. These products are designed with high-precision time synchronization to meet the requirements of high bandwidth and low latency, thereby enhancing customers' market competitiveness.
   In response to the demands of Industry 4.0 applications and the promotion of carbon emission net-zero policies,

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our focus for the new product planning in 2024 is on developing a new generation of Single Pair Ethernet (SPE) switches. These switches will utilize energy-saving and carbon-reducing networking technologies to meet the new requirements of Industrial Internet of Things (IIoT) applications. By combining the low power consumption and low operating costs of SPE switches with the integration of traditional industrial operational technology (OT) and information technology (IT) requirements through IP transformation, we can achieve further advances. In addition, the development of key technologies for IIoT Ultra Reliable Low Latency Communications (URLLC) applications through Time Sensitivity Network (TSN) will open up new markets for industrial switches, expanding business opportunities for industrial-grade SPE switches in untapped areas. Our existing customers have consistently expressed their need for SPE switch products, including 10Base-T1L and the associated PoDL power supply technology. They are looking to upgrade to a new generation of SPE network switches that can meet the demands of IIoT smart factories and provide a comprehensive solution for Industry 4.0. This will enable a new approach to OT and IT integration. Furthermore, leveraging the same technology development, we aim to simultaneously address the low-latency and high-reliability requirements of Building Automation, enhance Connectivity, and reduce communication costs through large-scale Sensor deployment via SPE Switches, thereby enhancing the market competitiveness of industrial control and applications products.

1. Wireless Broadband BU
   Global telecommunications operators are rapidly upgrading fiber optic fixed network infrastructure, deploying 5G networks, and increasing the number of wireless base stations in response to the growing demand for high bandwidth for remote work and smart home environments. Going forward, they will continue to focus on integration and development in the two key areas of 5G and wireless broadband.
   In the 5G segment, the Company is focusing not only on expanding in the 5G enterprise vertical market, but also on developing wireless radio frequency units (RU) and end-to-end solutions that can be customized and flexibly applied in various vertical fields. The Company is investing to meet the application service requirements of the 5G telecommunications market by integrating 5G CPE (FWA) and 5G small cell (RU, CDU) product solutions.
   Telecommunications operators have significantly increased the number of wireless access points (Wi-Fi AP) and terminal devices, such as high-speed wireless routers and extenders, in response to the growing demand for high bandwidth in remote work and smart home networks. This trend will also continue to drive the demand for enterprise-grade wireless APs and home routers. The advancement of Wi-Fi 7 technology also results in a significant increase in network bandwidth, simplifying the integration of XGSPON ONT and facilitating the transition to the 10G network era and the future multi-10G broadband network.
2. Business Entity for Digital Multimedia and Mobile Solutions
   The growth demands of IoT and 5G will drive the continued growth of digital multimedia in the future, with smart home and residential security surveillance video products leading the way.
   To enhance product differentiation and competitiveness of ODM/OEM/JDM, key initiatives include vertical integration of new key technologies such as millimeter wave radar, AI deep learning, and software-related algorithms such as facial recognition and motion detection. Integration with public and private clouds will also be crucial.
   In the second half of 2023, we ventured into the cloud baby monitor market to increase future revenue for the Company. In response to the growing number of accidents caused by blind spots in large vehicles, our company has conducted extensive road tests with customers for commercial vehicles using the UN/ECE R151 side blind spot detection radar. Additionally, we have refined our strategies to improve the accuracy of detecting false alarms

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and missed detections. At the same time, we are actively collaborating with electric bus manufacturers to integrate our company's ADAS Domain Controller into the AEB/LKA sub-control unit. Our goal is to harmonize the ADAS requirements of Taiwanese electric buses with international standards.

1. 1. Major Production and Marketing Strategies for the Year
   2. 1. In line with global trade protection measures, we are constantly striving to make the most appropriate supply chain adjustments to enhance our relationships with strategic suppliers. This will optimize logistics costs, stabilize material sources and improve our shipping capabilities.
      2. Improve overall efficiency by continuously optimizing production capacity planning. Collaborate with newly established Vietnamese subsidiary to optimize production capacity allocation, thereby improving the overall quality of product manufacturing quality and cost competitiveness.
      3. Actively expand core businesses combining with group resources to provide the comprehensive solutions to customers.
2. Future Development Strategies of the Company
   The Company's long-term strategies are as follows to enhance profitability and maintain sustainability:

1. Strengthening the foundation: We will optimize the switch, focus on broadband-related business, increase the proportion of high-end models, cultivate long-term partnerships with customers and suppliers, explore new sales

markets, and strive for growth. Strictly control the quality and cost of manufacturing to improve the operation efficiency and profitability of the Company.

1. Strengthening the foundation: We will optimize the switch, focus on broadband-related business, increase the proportion of high-end models, cultivate long-term partnerships with customers and suppliers, explore new sales markets, and strive for growth. Strictly control the quality and cost of manufacturing to improve the operation

efficiency and profitability of the Company.

1. Expansion: Constantly seeking opportunities to enter new markets and expand distribution channels.

(IV) M&A: Continue to leverage mergers and acquisitions to build an ecosystem of strategic partners, to become a highly capable mid-size fleet and rapidly expanding the Company's combat capabilities.

1. We continue to invest in ESG-related sustainable development, leveraging the Group's experience to become a leader in the field.

IV. Impact of External Competitive Environment, Regulatory Environment and Overall Business Environment

The Company will continue to focus on core technologies and develop high-end integrated products to enhance their value and avoid price competition with low-end products. We will also actively expand sales channels and provide customers with comprehensive solutions. In terms of the business environment, although the supply chain bottleneck continues to ease, factors such as high inflation risks, interest rate hikes, and geopolitical disruptions continue to create uncertainty in the global economy and international trade. However, the development of technology applications such as 5G, Wi-Fi7, connected cars, and artificial intelligence has become an inevitable trend and is expected to provide growth opportunities for the telecommunications industry.

In addition to strengthening its core competitive capabilities and integrating cross-product line technologies, Alpha Network will continue to improve its corporate sustainability by prioritizing environmental protection, social responsibility, and corporate governance performance. The Company will promote Alpha Network's ESG strategy and implement various initiatives to protect the environment and create a friendly workplace.

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We would like to express our sincere gratitude to all shareholders for the unwavering support and encouragement towards the Company. Looking ahead to 2024, Alpha Network will proceed cautiously in the market, expanding our product and service offerings in existing channels, actively exploring new channels, and venturing into new application areas. Internally, we will strive to optimize and integrate our existing businesses, minimize duplicate investments within the Group, and improve operational efficiency. Moreover, the Company consistently enhances its technology and distribution channels by engaging in mergers and acquisitions, to maximize benefits for both the Company and the shareholders.

Alpha wish you good health and all the best!

Sincerely,

Chairperson: Wen-Fang Huang

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Company Profile

I. Founding Date: September 4, 2003

II. Corporate History:

Date	Summary
	Alpha Networks Inc. was founded as a spin-off of the D-Link Corporation with capital of NT$2 billion.
August 2003	Launch of the world's fastest VDSL product (50M/30M).
	The number of the broadband integrated access device (IAD) produced and sold to Japan reached 1 million.
September 2003	The Company obtained ISO14001 and TL9000 certification.
October 2003	The Company acquired MTT (the third party of Russia) certification.
November 2003	The Company developed the worldwide fastest (50M) ADSL2++ product.
	The Company developed digital media player (DMA series) and network driver for participating in the Consumer
	Electronics Show (CES) held in January 2004.
December 2003	The Company's home network gateway was the first product to pass IPv6 certification among the network
communication companies in Taiwan.
	The Company won the 2003 network accessories procurement tender of Department of Education, Taipei City
	Government, with the firewall and layer 3 switch products.
February 2004	The Company completed the seasoned equity offering which resulted in the paid-up capital increased to NT$2.5
billion.
	The Company's DPH-80 and DVG-102 products were included in the VoIP product testing & assessment of
February 2004	Network Benchmarking Lab of ITRI. And, the products surpassed similar offerings of domestic and foreign
	manufacturers in voice quality and SIP compatibility.
	The Company submitted the first integrated access device (IAD) with IPv6 support for testing by IPv6 certifier in
	the world.
March 2004	The Company, ahead of competitors, launched digital multimedia player (the DMA series) which received high
praises from customers in Europe and USA.
	The Company formed the strategic alliance with Quanta Computer which acquired a 17% ownership interests in
	the Company.
April 2004	The ADSL Wireless IAD passed certification of IPv6 Ready Logo Committee.
December 2004	Alpha Networks Inc. was listed on TWSE.
January 2005	The wireless voice integration gateway won the Taiwan Excellence Award.
	The Company was ranked 2004 Taiwan Manufacturing Top 1000 in Business Weekly issue No. 912.
May 2005	Besides, the Company was also ranked 2nd in the fastest growing businesses and 6th in the communication
	electronics category.
December 2005	The Ethernet passive optical network switch won the Hsinchu Science Park Innovative Products Award.
January 2006	The first unsecured convertible corporate bond was issued.
April 2006	The board of directors of the Company resolved the merger of Sun Asia Enterprise.
July 2006	The Company was named Info Tech 100 by Business Next Magazine.
October 2006	The merger of Sun Asia Enterprise is completed.
October 2006	The Company obtained certificate for SONY OEM Partner.
January 2007	The Company received the INTEL ViiV certification for the wireless digital media player.
March 2007	Wistron Corporation acquired a 5.63% ownership interests in the Company and was one of the major shareholders
of the Company.
September 2007	The Company launched WiMAX products.

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