Letter to the Shareholders

Dear Shareholders,

In the past two decades of development at VIVOTEK, we have witnessed the evolution of the security industry from analog systems to digital systems, then further advancing to networked systems, as well as various innovative technologies enhancing the accuracy of audio and video compression and intelligent analysis. Today, artificial intelligence, through cloud-based big data collection, has penetrated various fields of application, not only saving labor costs and improving work efficiency but also redefining our perception of traditional work. It has triggered the evolution of various technologies, reshaping the functional specifications of various products and constantly enhancing the quality of life through technology. This reflects several important trends for the future:

1. Exclusive Field Applications: Harnessing the collaborative efforts of various experts, the application of artificial intelligence continually refines algorithms customized for specific domains. Data sourced from exclusive fields significantly enhance the precision of artificial intelligence, thereby elevating customer satisfaction across various sectors such as home appliance control, autonomous vehicle assistance, traffic monitoring, smart buildings, and automated factories.
2. Integration of Video Surveillance and Environmental Sensing: Cameras boast the most robust computational capabilities among IoT devices. By combining environmental sensing, the application scope expands, enabling deeper integration and lower maintenance costs. Real-time detection and recognition of objects within captured images facilitate proactive behavior pattern identification, delivering comprehensive AIoT solutions.
3. Integration of Smart Buildings and Real Estate Technology: Smart buildings necessitate not only the deployment of AIoT devices but also platforms facilitating device communication. Cloud management offers subscription-based services for resident security, concierge services, and energy conservation. Through a multifaceted service platform, the exchange of personally identifiable data is safeguarded, driving rapid growth in real estate technology.
4. Sustainable Operations: Energy-saving demands and secure privacy protection: System-on-chip technology tends toward lower energy consumption, while artificial intelligence enhances image quality in low-light conditions, reducing the need for auxiliary lighting and consequent carbon emissions. Simultaneously, regular firmware updates are imperative to combat network attacks, and product design must consider the maintenance costs for property owners.

As a frontrunner in the security industry, VIVOTEK has consistently built a strong reputation for the brand across more than 120 countries through its commitment to superior quality and cutting-edge technology. We are dedicated to becoming a technological pioneer and the best supplier of security solutions, continuously investing in the development of core video compression technology and the technological advancement of production automation. Furthermore, we collaborate with world-renowned system chip manufacturers and cloud service brands to engage in the research and development of deep learning artificial intelligence.

According to the 2023 Security Report, the global cloud-based service revenue has achieved a nearly 22% Compound Annual Growth Rate (CAGR) over the past five years. In response to the security market's demand for cloud services, we have launched the VORTEX cloud monitoring subscription service. VORTEX boasts of high image resolution, advanced AI analysis, easy installation upgrades, and remote management advantages, aiming to accelerate small- and medium-size enterprises' transition to cloud-based security. We also provide hybrid cloud and on-premises solutions, allowing users to gradually upgrade existing equipment to VIVOTEK's edge-intelligent network cameras, meeting security needs anytime, anywhere, and across devices.

VORTEX integrates our proprietary edge intelligent image analysis for precise detection of people, vehicles, and objects. Leveraging cloud services, it utilizes deep learning intelligent search technology, i.e., Deep Search, to quickly locate relevant clues. This not only reduces the time and cost of manual search in traditional closed-circuit television systems but also ensures user privacy by storing images in the camera's built-in memory card, meeting privacy protection requirements.

The global supply chain has undergone significant changes due to geopolitical and environmental sustainability requirements, posing immense challenges to businesses in terms of operations and risk management. In response to customers' desire to mitigate risks associated with manufacturing in a single location, VIVOTEK, thanks to years of manufacturing experience, has completed the transition of its production management system and processes to its Vietnam production line within one quarter, facilitating mass production and shipment. Furthermore, it plans to establish one-third of its production capacity in Vietnam this year to meet growing demand. As a leader in sustainability within the security sector, VIVOTEK has intensified communication with stakeholders to promote sustainable transformation within Taiwanese society and businesses. The company released its annual report titled "Safe City, Sustainable Progress," adhering to the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. It also underwent verification by the British Standards Institution, ensuring that its sustainability information complies with the AA1000 accountability principles. This demonstrates its commitment to sustainability and has earned recognition in the 9th Corporate Governance Evaluation as well as the Taiwan Best International Brand award organized by the Ministry of Economic Affairs Industrial Bureau. Leading with AI-driven sustainability, VIVOTEK actively participates in social services and upholds its sustainability commitments through global renewable energy and excellent corporate governance. By combining the spirit of caring for brand,, the company endeavors to exert positive sustainable influence. In response to the information security challenges posed by the Internet of Things, the company established a dedicated Information Security Working Group and obtained verification for compliance with the ISO 27001 Information Security Management System international standard from the British Standards Institution. It is committed to establishing information security risk management mechanisms and standard processes for information security incidents to ensure operations continue with minimal risk.

Last year, the primary demand came from countries affected by the NDAA effect. Although there was an increase in revenue in the first half of the year, the oversupply of inventory in the later stages of the pandemic required a longer time to be cleared, resulting in the performance of both the brand and the OEM in the second half of last year falling below expectations. The cumulative consolidated revenue for the year 2023 was NT$9.162 billion, a decrease of 7.9% compared to NT$9.948 billion in 2022. The overall consolidated net profit for the period was NT$510 million, with a Return on Equity (ROE) of 14.18%. Despite facing market headwinds, our sales team continues to focus on vertical markets such as transportation, factories, and building automation, securing numerous projects. Examples include Ching-Kuo Chi-Hai Cultural Park and university campus security in Taiwan, large-scale logistics centers and shopping malls in Karuizawa, Japan, agricultural cooperatives and chain laundromats in the United States, as well as public transportation safety and intersection monitoring in Europe, Mexico, and Colombia. These successes underscore the completeness and competitiveness of VIVOTEK's solutions. Apart from continuous investments in smart manufacturing to cut production costs and improve inventory turnover, we also employ intelligent image analysis in automated testing to reduce quality failures caused by human mistakes.

In the future, VIVOTEK will continue providing trustworthy intelligent security systems with a focus on speed, transparency, quality, and teamwork. We plan to expand our global sales channels through localization efforts and integrate artificial intelligence into practical applications to meet customer demands. Internally, we aim to enhance operational resiliency and optimize costs. With "care" as our core value, we are committed to driving social sustainable development and becoming a leading brand in the global security industry.

Sincerely wishing you all good health and the best for the year,

Chairman: Bill Lo

General Manager: Alex Liao