ELAN Microelectronics : 2023 Annual Report

Stock Code: 2458

ELAN MICROELECTRONICS CORP.

ANNUAL REPORT 2023

EMC Annual Report is available at: https://mops.twse.com.tw

TABLE OF CONTENTS

I.

Letter to Shareholders

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1. Company Profile

1.	Date of Incorporation	4
2.	Company History	4

1. Corporate Governance Report

1.	Organization	8
2.	Directors, Supervisors and Management Team	11

3. Remuneration Paid to Directors, Supervisors, President and Vice President in Last Fiscal Year……………………………………………………………………………………….. 18

4.	Implementation of Corporate Governance	……….	26
5.	Audit Fee Information	81
6.	Information Regarding the Change of Accountant	83
7.	The Company's Chairman, President, Chief Financial Officer or Chief Accounting Officer
	Who Has Worked For The CPA's Firm or Its Affiliates During The Last Fiscal Year	84

8. Any Transfer of Shareholdings And Changes In Equity Pledge From The Directors, Managers And Shareholder(S) Holding More Than 10% of The Shares During The Last Fiscal Year and

Until The Publishing Date of The Annual Report	84
9. Information Regarding The Relationship Between The Related Parties Identified In No.6
Of The Financial Accounting Standards and Among The Top 10 Shareholders	85

10. The Number of Shares Held By The Company, The Company's Directors, Supervisors, Managers, and Businesses Directly or Indirectly Controlled By The Company In The Same

	Joint Venture, and The Combined Shareholding Percentage	86
IV. Capital Overview
1.	Capital and Shares	87
2.	Corporate Bonds	93
3.	Preferred Stocks	93
4.	Global Depositary Receipt	93
5.	Employee Stock Options	93
6.	Status of New Shares Issuance in Connection with Mergers and Acquisitions	93
7.	Funding Plans and Implementation	93
V. Operating Highlights
1.	Business Activities	94
2.	Market and Sales Overview	102
3.	Human Resources	110
4.	Environmental Protection Expenditure	111
5.	Labor Relations	112

6. Information Security Management……………………………………………………… .. 115

7.	Important Contracts	117
VI. Financial Information
1.	Five Year Financial Summary	119
2.	Five Year Financial Analysis	123
3.	Audit Committee's Review Report	127

4.	Financial Statements of the Last Fiscal Year	127
5.	Last Fiscal Year's Parent-Subsidiary Consolidated Financial Statements and Independent
	Auditors' Report	198
6.	Financial Difficulties of the Company and its Affiliates During the Last Fiscal Year and
	Until the Publishing date of the Annual Report	280
VII. Review of Financial Conditions, Financial Performance, and Risk Management
1.	Analysis of Financial Status	281
2.	Analysis of Operating Results	282
3.	Analysis of Cash Flow	284
4.	Major Capital Expenditure Items on the Financial Operations during the Last
	Fiscal Year	285
5.	Investment Policy in Last Year, Main Causes for Profits or Losses, Improvement Plan
	Thereof and the Investment Plan for the Coming Year	286
6.	Analysis of Risk Management and Assessment	287
7.	Other Important Matters	292
VIII.	Special Disclosure
1.	Summary of Affiliated Companies	293
2.	Private Placement Securities During the Last Fiscal Year and Until the Publishing
	Date of the Annual Report	300
3.	The Shares in the Company Held or Disposed of by Subsidiaries During the Last Fiscal
	Year and Until the Publishing date of the Annual Report	300
4.	Other Necessary Supplementary Explanations	300
IX. Any matter that has material effect on the shareholders' equity or the price of securities
	as set out in section 2, paragraph 3, Article 36 of the Company Act During the Last Fiscal
	Year and Until the Publishing date of the Annual Report	301
Statement of Internal Control System	302

1. Letter to Shareholders Dear Shareholders,

1. 2023 Operating Results

In 2023, the global economy continued to face numerous challenges, including prolonged inflation, the ongoing stalemate in the Russia-Ukraine conflict, slowing down the infrastructure development and the economic growth in mainland China, and the escalating geopolitical conflicts in the Middle East. These concerns have led to significant obstacles in global economic development, subsequently weakening the purchasing power of consumers worldwide.

Certainly, the global market for consumer electronics, including the laptop market, has also been affected by weak demand. It is estimated that the annual shipment volume will decrease by double digits, dropping to 174 million units. Due to the Company's heavy reliance on specialized chips for laptop-related products, we have been similarly affected. This has resulted in a 7.46% decrease in revenue for the year, with profits after tax also falling below those of 2022.

Global laptop manufacturers adopted conservative demand planning in 2023, mainly due to the lingering effects of high inventory levels from previous years since 2022. As a result, much of the year was spent on destocking efforts. Even though inventory levels for laptop brands and their supply chains gradually returned to normal in the latter half of 2023, subdued demand in end markets post-pandemic led brand manufacturers' customers to supplement their basic orders with rush orders to meet market demand. Looking back over the whole year, despite external disruptions causing early challenges in our operations, the Company benefited from a spirit of long-term dedication and continuous innovation in product development. As a result, each product line still delivered an outstanding performance.

The Company continued to deepen its efforts in developing more optimized products, aiming to provide brand customers with greater market competitiveness. In 2023, we completed the development of several products, including: direct current brushless motor control chips; active pen control chips supporting various protocols for touch screen pens; precise touch screen chips for mobile phones; solutions supporting single-layer external touch screen displays; fingerprint recognition system solutions for preventing fingerprint spoofing attacks and capacitive pressure sensing and haptic feedback touch screen solutions.

In 2023, the Company's related product lines have successfully continued to regain global market share. Within the touch screen module sector, the market's clear direction towards increasing the size of touch screen modules and incorporating haptic feedback technology presents significant potential for the performance contribution of our products. The touch screen chip segment has benefited from new licensed collaborations involving pen solutions and market entry into Single Layer On-Cell (SLOC) touch panels. This positions the Company to lead deeper into the high-end laptop market and expand the application of touch screen chips into more diversified technology fields. Despite facing headwinds in the overall economy in 2023, biometric devices encountered setbacks. However, their trend towards lighter and slimmer designs has brought stability to the Company's profit margins. Our fingerprint recognition market share currently ranks second globally. However, due to ongoing customer promotion of Match-On-Chip (MOC) technology, the Company is fully committed to aligning with customers' product shipment plans.

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In 2023, the consolidated revenue reached 12.059 billion New Taiwan Dollars, with an impressive gross profit margin of 45%. The consolidated operating net profit margin stood at 20.2%. The net profit after tax of the parent Company amounted to 2.143 billion New Taiwan Dollars.

2. Summary of the Business Plan for 2024

Entering 2024, inflation has gradually eased since the end of 2023. Although the global economic growth rate remains subdued, consumer spending is expected to increase due to the continued decline in unemployment rates. In the laptop market, Microsoft is expected to launch the Windows 12 operating system this year. Additionally, they have indicated the possibility of discontinuing updates for the Windows 10 operating system by 2025. This move is anticipated to trigger a new wave of device upgrades. Furthermore, brand manufacturers are actively investing in the development of AI-powered PCs, aiming to inject innovation into the laptop market.

According to Omdia's estimation, the shipment volume of notebook computers in 2024 is expected to increase by single digits annually, with a total shipment volume forecasted to reach 186 million units. Considering that the destocking actions in the notebook computer supply chain have reached the final stage, and brand manufacturers' purchase order plans for 2024 are expected to return to normal, despite the ongoing uncertainties in the overall economy, the Company believes that through our dedication to the laptop industry and efforts to expand new product technologies and applications, we can continue to improve overall operational performance amidst fluctuations.

In 2024, AI-powered PCs will truly begin to ferment, and the increase in their technological content will further drive the growth in chip value, injecting new momentum into the Company's growth and operations. In the initial stages of development, the focus will be on strengthening existing technological levels, while simultaneously discussing future potential development directions with customers. The aim is to enhance consumer user experience by developing corresponding technological projects. We have a long-term optimistic outlook on its development prospects.

In 2024, the anticipated completed product developments include: AI touchpad with anti-palm touch and waterproof solutions; AI touch screen with active pen tracking, synchronous display, anti-palm touch, and waterproof solutions; Fingerprint recognition application solution for AI- powered PCs; Pressure sensing and haptic feedback driving chips for NB touch pads; Area dimming control chips for automotive displays; Integrated touch driver chips for automotive displays. Additionally, technologies e.g. haptic feedback, SLOC, etc., will be introduced and expanded upon. Long-term improvements and optimizations will be made to enhance both price and technical capabilities. There is also an opportunity to drive average prices upwards, thus benefiting the operational performance of related laptop products.

In addition to laptop products, the Company will also focus on developing the ADAS (Advanced Driver Assistance Systems) and smart cockpit solutions. We will collaborate with affiliated companies e.g. Chimei Motor Electronics Co., Ltd. and Avisonic Technology Corporation to jointly develop algorithms and propose automotive solutions. We expect showcasing the operational performance of these endeavors this year.

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The Company adheres to the principle of deepening core technologies and holds on to the concept of developing integrated systems to provide customers with solutions that possess world-class competitiveness. Furthermore, we are committed to conducting business through an approach that embraces sustainability, actively fulfill corporate social responsibility, and pursue a steady and long-term development strategy aimed at enhancing the operational results and profitability of the group. With the aim of enhancing both the business and social value of our enterprise, we are dedicated to promoting our influence across three dimensions: economic, environmental, and social. By doing so, we seek to create greater value and well-being, ultimately giving back to all stakeholders involved.

Sincerely yours,

Yeh, I-Hau

Chairman

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1. Company Profile
2. 1. Date of Incorporation: May 5, 1994
   2. Company History

Year	Organization /Events/Products	Corporate Governance Awards and Ratings
2023	International Organization for	Granted an ISO 14064-1 Greenhouse Gas Inventory
	Standardization	certification statement in 2022
	Computex Taipei 2023	The Company's AI Automated Lane Keeping Assist (LKA)
		and Forward Collision-Avoidance Assist (FCA) System for
		autonomous buses won the "Vehicle Technology and Smart
		Cockpit Category Award" at the Best Choice Award at the
		Computex Taipei 2023
	Ministry of Economic Affairs	The 8th National Industrial Innovation Award for Outstanding
	(MOEA)	Innovation Enterprises
2022	Ministry of Economic Affairs	A+ Enterprise Innovation Research and Development Plan
	(MOEA)	Award for its successful promotion of the
		Environmental Sensing Advanced AI Driver Assistance
		System (ADAS) and Intelligent Cockpit System Development
		Program
	China Credit Information Service,	The 10th place in the Taiwan Large Enterprises' Ranking of
	Ltd. (CRIF, Taiwan)	TOP 5000 - Integrated Circuit Design Industry in 2022
	Industrial Safety and Health	2022 Gold Award of disaster-free working hour Record
	Association (ISHA), R.O.C.	Activities of Public Institutions
2021	Hsinchu Science Park	R&D Achievement Award
		Outstanding Manufacturer - Innovative Product Award
	Sports Administration of the	Won the "2021 i Sports Enterprise Certification" seal awarded
	Ministry of Education	by the
	Digital Times Magazine	2020 Top 100 Taiwan's High-Value Companies - 4th place
	Commonwealth Magazine	World's Most Admired 2000 Companies Top 50 - 18 place
2020	Digital Times Magazine	2019 Top 100 High-Value Companies - 7th place
	Forbes	Best Companies Under a Billion in Asia
	Hsinchu Science Park	Outstanding Prize in Greening and Beautification Contest
	CSR Committee	Renamed as "ESG Committee", it is the highest-level
		sustainable development decision-making center within the
		Company, examining the Company's core operating
		capabilities and establishing medium - and long-term
		sustainable development plans.
2019	ISO	Certification of ISO 45001: 2018 Occupational Health and
		Safety Management Systems.
	Taipei International Information	Best Choice Award for the "Panoramic 360-Degree Fisheye
	Technology Show (the	AI Smart Traffic Detection Technology".
	"COMPUTEX Taipei")
	Workforce Development	Silver medal the Talent Quality-management System (TTQS)
	Agency/Ministry of Labor (MOL)	Award
	SGS	SGS's 2019 "ISO Plus Award"
	Health Promotion Administration	Innovation Workplace Award and the Creative Healthy
	of the Ministry of Health and	Workplace Award
	Welfare
	Hsinchu Science Park	Smart Science Park Innovation Application Award -
		"Battery-Free Contactless Biometric Smart Card Solution"
2018	Taiwan Industrial Technology	Taiwan Golden Root Award - Industrial Technology Special
	Association	Contribution Award
	Hsinchu Science Park	Distinguished Green Landscaping and Contribution Award
		2018 R & D Achievement Award
		2018 Innovative Product Award
	Health Promotion Administration	"Excellent Health workplace" prize and "Gender-Friendly
	of the Ministry of Health and	Health Award"
	Welfare
2017	Hsinchu Science Park	Distinguished Green Landscaping and Contribution Award.
	Consumer Electronic Product	Top 100 Innovative Product Award-Biometric Smart Card
	Category of 2017 IT Month.
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	Hsinchu Science Park	2017 Innovative Product Award -Pen-EmulatedFinger-Pen -
		Concurrent Touch Screen Solution
2016	Hsinchu Science Park	Distinguished Green Landscaping Award
		2016 R & D Achievement Award
		2016 Innovative Product Award - Smart-ID Solution
2015	SGS	Obtained certification for the Corporate Social
		Responsibilities	Report	and	adopted	international
		certifications of AA1000 AS Type 2 Moderate-Level
		Assurance and GRI G4
	Hsinchu Science Park	Distinguished Green Landscaping Award
		2015 R & D Achievement Award
		Innovative Product Awards - Chrome book Smart Touch pad
		and Touch Screen Solution
	Health Promotion Administration,	Vitality Award in the "Healthy Workplace Health Promotion"
	Ministry of Health and Welfare.
2014	Hsinchu Science Park	Distinguished Green Landscaping Award for the 10th
		consecutive year
		R & D Achievement Award
	ESG	In accordance with the vision and mission of the Company's
		ESG policy, the "CSR Committee" was established
2013	Ministry of Economic Affair	Portable Product with 3D Depth Sensor for Hand Gesture
		Recognition - Leading Program
		Corporate Standardization Award in the 14th National
		Standardization Award
	Forbes	One of the 2013 Forbes Best Companies Under a Billion in
		Asia
	Windows	IT Month's "Gold Award" and "Top 100 Innovative Product
		Award"-Windows 8 Single-Chip Smart Touch Screen
		Solution
	Hsinchu Science Park	2013 R & D Achievement Award
		2013 Innovative Product Awards - Windows 8 Single-Chip
		Smart Touch Screen Solutions
	Industrial Development Bureau,	2nd Term Excellent Backbone Enterprises Award
	MOEA.
2012	COMPUTEX Taipei.	Golden Award - Smart-Touch screen™ IC;
		The Best Choice Award - Best Choice of the Year	- IC &
		components product category
2011	Ministry of Economic Affairs	Awards - Capacitive Touch Screen with Force Sensing
		Program from the "Leading Program"
	Hsinchu Science Park	2011 Innovative Product Award - Capacitive 10-Finger Touch
		Screen and Stylus
2010	USA's 2010 Consumer Electronics	Innovative Design and Engineering Award - Smart Remote
	Show.	Control
	Capacitive Multi-Finger Touch	13th Outstanding Photonics Product Award
	Screen and Stylus
	Hsinchu Science Park	Awards for the "Optical System Integration Chip Plan with
		High Recognition Rate and Wide Dynamic Range" - Research
		on Policy of University-Industry Collaboration for Enhancing
		Sustainable Growth for NSC Science Park
		2010 R & D Achievement Award
		2010 Innovative Product Awards - Smart-3D Remote Control
2009	COMPUTEX Taipei	Best Choice Award
		Annual Award - Transparent Touch pad
		Excellence Award in the peripheral and accessories category -
		Transparent Touch pad
		Excellent Digital Entertainment Product Award - Smart
		Remote Control
	Ministry of Economic Affairs.	Awards for the "Portable Soft-FilmMulti-Touch Surface
		Capacitive Module Program" from the "Industrial Technology
		Development Program"
		Outstanding Innovation Award in the 17th Industrial Science
		5

		and Technology Development Award
	2009 IT Month	2009 IT Month's Outstanding Information Application and
		Products Award - Smart Remote Control
	Ministry of Economic Affairs	the 10th Industrial Excellence Award
	Hsinchu Science Park	2009 Innovative Product Awards -Smart Remote Control
		2009 R & D Achievement Award
		2009 Promotion of International Exchange and Cooperation
		Award for Excellence
		Outstanding Award -2009 Environmental Protection
		Competition
2008	Hsinchu Science Park	2008 Innovative Product Award
	ELAN Microelectronics	Officially merged with Elantech Devices in 2008.
2007	Hsinchu Science Park	Distinguished Green Landscaping Award for the 7th
		consecutive year.
	Ministry of Economic Affairs.	Contribution Award in the "2007 National Invention and
		Creation Award"
2006	Hsinchu Science Park	Distinguished Green Landscaping Award for the 6th
		consecutive year.
	Industrial Development Bureau,	Received a subsidy from the consultation program for the
	MOEA	development of leading new products ("Leading Product")
	Hsinchu Science Park	2006 Innovative Product Award
2005	Hsinchu Science Park	Distinguished Green Landscaping Award for the 5th
		consecutive year
		Third Term R & D Achievement Award
2004	Hsinchu Science Park	Distinguished Green Landscaping Award for the 4th
		consecutive year
		Innovative Technology R & D Program Awards -
		TFT LCD single-chip controller
		Innovative Technology R & D Program Awards -
		2.45GHz RF Transceiver IC for Cordless Phones
	Department of Industrial	Outstanding Award in the 12th "MOEA Industrial Science and
	Technology, MOEA	Technology Development Award"
	Forbes	Recognized by Forbes as one of the "100 Best Small Asia-
		Pacific Companies" in 2003
	Hsinchu Science Park	R & D Achievement Award - 2nd place
2003	Entered into the European market	Established ELAN's European branch office in Switzerland.
	Hsinchu Science Park	Distinguished Green Landscaping Award for the 3rd
		consecutive year
	Entered southern China market	Established Elan Shenzhen Co., Ltd.
	Hsinchu Science Park	Distinguished Green Landscaping Award for the 2nd
		consecutive year
	Forbes	Recognized by as one of the 200 Top Best Small Companies
	Entered the eastern China market	Established Elan Shanghai, Ltd.
2001	Elan Microelectronics	The construction of the ELAN Technology Building located
		on No. 12, Chuangxin 1st Road has been completed and the
		Company Elan Microelectronics was officially moved into
		this building.
	Hsinchu Science Park	Distinguished Green Landscaping Award
	Securities and Futures Commission,	Approved to be listed and to trade its stocks in the exchange
	Ministry of Finance	market (stock code: 2458).
	National Invention Competition	Gold Medal Award in the 10th National Invention Competition
	ISO	Passed ISO9001 quality certification
	Hsinchu Science Park	2001 Innovative Product Award
	Forbes	Recognized by Forbes as one of the 200 Top Best Small
		Companies
	Entered the eastern China market	Established Elan Shanghai, Ltd.
2000	Securities and Futures Commission,	Approved to be listed and to traded its stocks over the counter
	Ministry of Finance	(stock code: 5433)
1999	Hsinchu Science Park	1999 Research and Development Investment Award
1998	Industrial Development Bureau,	1998 Excellent Intellectual Property Management System
	MOEA.	Award
		6

1997	National Invention Competition	Corporate Silver Medal in the 6th National Invention Prize
	To expand markets and marketing	Established ELAN Microelectronics Hong Kong branch office
	bases in Hong Kong and mainland	to expand markets and marketing bases in Hong Kong and
	China.	mainland China.
1996	Hsinchu Science Park	Innovation, Technology, Research and Development Plan
		Awards-
		The high-speed computer screen controller
		Innovation, Technology, Research and Development Plan
		Awards-
		The MPEG-2 video decoder
		Innovation, Technology, Research and Development Plan
		Awards-
		The MPEG-2 audio decoder
		1996 Research and Development Investment Award
1995	Hsinchu Science Park	Key Components and Products R & D Plan Awards-
		The neural network IC series and development system
1994	Establishment of Elan	The registered and paid-up capital amounting to NT$1 billion
	Microelectronics Corporation
	Hsinchu Science Park	Issued the Business Registration Certificate and the Company
		officially commence its operations

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