MSI - Annual Report 2017 | FinancialReports.eu

Stock Code:2377

MICRO STAR INTERNATIONAL CO., LTD.

2017 ANNUAL REPORT

Taiwan Stock Exchange Market Observation Post System: http://mops.twse.com.tw MSI annual report is available at: http://www.msi.com Printed on May 3, 2018

Notice to readers

This English-version annual report is a summary translation of the Chinese version and is not an official document of the shareholders’ meeting. If there is any discrepancy between the English and Chinese versions, the Chinese version shall prevail.

I. SPOKESPERSON & DEPUTY SPOKESPERSON

Spokesperson: Hung,Pao-Yu Title: Chief Financial Officer Tel.: 886-2-3234-5599 E-mail: [email protected]

DEPUTY SPOKESPERSON

Deputy Spokesperson: Lin,Yi-Kai Title: Senior Manager Tel.: 886-2-3234-5599 E-mail: [email protected]

Deputy Spokesperson: Chang,Ju-Ting

Title: Senior Manager Tel.: 886-2-3234-5599 E-mail: [email protected]

II. HEADQUARTERS AND PLANTS

Tel.: 886-2-3234-5599

Address: No.69, Lide St., Zhonghe Dist., New Taipei City 235, Taiwan (R.O.C)

� .SECURITIES DEALING INSTITUTE

Name : Chinatrust Transfer Agent Address : 5F, No.83, Sec. 1, Chung-Chin S. Rd., Zhongzheng Dist., Taipei City Tel. : 886-2-6636-5566 Website : http://www.ctbcbank.com

IV. AUDITORS

Name : CPA: Liang, Hua-Ling & Lai,Chung-Hsi CPA Firm : PricewaterhouseCoopers, Taiwan Address : 27F, No.333, Sec. 1, Keelung Rd., Xinyi Dist., Taipei City 110 Tel. : (886) 2 2729-6666 E-mail : http://www.pwc.com

V. EXCHANGEABLE BOND EXCHANGE MARKETPLACE

None

VI. COMPANY WEBSITE

http://www.msi.com

Page � . Letter to shareholders …………………………………………………………………………………………………………………1 � . Introduction of the company ……………………………………………………………………………………………………… 4 ( � )Establishment date ……………..…...………………………..……………………………………………...…………………4 ( � )Development history ...………………………………………………………………………………………….………………4 � .Corporate governance report …………………………………………………………………………………......………………7 ( � )Corporate Organization …………………………………………………………………………………………………………7 ( � )Directors, Supervisors, President, Vice President, Assistant V.P., and department heads ...………...………………………………………………………………………………………………………………………9 ( � )Remuneration paid during the most recent fiscal year to directors, supervisors, president and vice presidents..……………………………………………………………………………………………………………………15 ( � )Corporate governance …………………………………………………………..…………………………………………… 20 ( � )CPAs fees………...…..………………………………………………………………………………………………………………41 ( � )CPA’s information…………………………………………………………………………………………………………………41 ( � ) MSI’s chairman, president, and managers in charge of its finance and accounting operations did not hold any positions within MSI’s independent audit firm or its affiliates in the most recent year.…………………………………………………………………………………………………………………………42 ( � )Information on Net Change in Shareholding and Net Change in Shares Pledged by Directors, Supervisors, Department Heads, and Shareholders of 10% shareholding or more………………42 ( � )Relationship among the Top Ten Shareholders ……………………………………………………………………43 ( )Ownership of Shares in Affiliated Enterprises………………………………………………………………………43 � . Stock subscription ………………………………………………………………….………………………………………………… 44 ( � )Capital and shares ……………………………………………..………………………………………………………………… 44 ( � )Corporate bonds ………………………………………………..………………………………………………………………… 49 ( � )Preferred shares ……………………………………………………………………………………………………………………49 ( � )Overseas depositary receipts…………………………………………………………………………………………………49 ( � )Employee stock warrants……………………………………………………………………………………………………… 49 ( � )Restricted Employee Shares ………………………………………………………………………………………………… 49 ( � )The section on issuance of new shares in connection with mergers or acquisitions or with acquisitions of shares of other companies shall specify the following matters …………………… 49 ( � )The status of implementation of capital allocation plans……………………………………………………… 49 � . Operation summary…………………………..………………………………………………………………………………………50 ( � )Business content ………………………………………………………………………………………………………………..…50 ( � )Market analysis and the condition of sale and production …………………………………………………… 61 ( � )Employees …………………………………………………………………………………………………………………………… 67 ( � )Environmental expenditures information………………………………………………………………………………67 ( � )Employee / employer relation ………………………………………………………………………………………………69 ( � )Material Contracts…………………………………………………………………………………………………………………71 � . Financial information …………………………………………………………………………………………..……………………72 ( � )Five-year Financial Summary ……………………………………..…………………………………………………………72 ( � )Five-year Financial Analysis……………………………………………………………………………………………………75 ( � )Supervisors’ /Audit Committee’s Report for the most recent year …………………………………………78 ( � )Financial statements in the most recent year…………………………………………...……………………………78 ( � )State the financial position of the Company if any insolvency occurs in the Company or affiliates in the most recent year until the date this report is printed …………………………………….……………78 � . Review of Financial Conditions, Financial Performance, and Risk Management…….……………………79 ( � )Analysis of Financial Status ……………………………………………………………………………………………………79 ( � )Analysis of Financial Performance ……………...…………………………………………………………………………80 ( � )Analysis of cash flows ……………………………………………………………………………………………………………81 ( � ) Major capital expenditures and impact on financial and business in the most recent year……81 ( � ) Reinvestment in the most recent year …………………………………………………………………………….……81 ( � )Risk analysis and evaluation in the most recent year and up to the date of the annual report

printed…………………………………………………………………..……………………….…..………………………………82 ( � )Other material events ……………………………………………………………….…………………...……………………87 � . Special disclosures ………………………………………………………………..……………………….…..…………………… 88 ( � )Related party ………………………………………………………………………………………..…......…..…………………88 ( )Subscription of marketable securities privately in the most recent year and up to the date of the report printed ……………………….…………………………...….………...…………...……………………………………96 ( )Status of MSI Common Shares Acquired, Disposed of, and Held by Subsidiaries……………………96 ( )Other Necessary Supplement………………………………...….………...…………...…………………………………96 ( )Occurrence of events difined in Securities Transaction Law Article 36.2.2 that has great impact on shareholders’ equity or security price in the most recent year and up to the date of the repost printed………………….………………………………...….………...…………...…………………………………… 96

.Letter to Shareholders

Dear Shareholders:

Driven by the robust recovery in advanced countries in Europe and America, the global economic growth in 2017 was better than expected. The growth momentum in emerging countries has been gradually turning strong as well. PCs, in particular, showed a slight decline in overall shipment throughout 2017 under the impacts of smart phones. The higher-than-ever requirements for the hardware on high-end markets such as that for Gaming and popular Gaming contests, and live-broadcasting platforms, however, continue to drive up the demand of players for medium-to-high-end products. In addition, with various types of PC games introduced and innovated and the continuous enrollment of opponents, the scale of the games and also the Gaming market are gradually expanding. Our company is known for its long-term development of Gaming. Our products meet the needs of users and hence are growing simultaneously with the market. High-end notebooks, desktop computers, motherboards, and graphic cards meant for Gaming, in particular, are leading in the world, with outstanding performance in both income and profits. The rise of cryptocurrency has also driven the growth in the demand for graphics cards and contributed to the robust growth momentum in the overall operation of the company.

For 2018, we expect that the global economy will be able to keep the steady growth stream because of the likely stimulation from the tax reduction plan enforced in the US for the economy to heat up. Economic growth will accordingly contribute to the demand for purchasing medium-to-high-end products. Our company will continue to demonstrate its capabilities in research and development, manufacturing, and sales by introducing a complete series of Gaming products in order to create even higher values for the Company and its shareholders.

( � ) Operating Performance in 2017
1.Consolidated financial results

company will continue to demonstrate its capabilities in research and development, manufacturing, and sales by introducing a complete series of Gaming products in order to create even higher values for the Company and its shareholders. (�) Operating Performance in 2017 1.Consolidated financial results	company will continue to demonstrate its capabilities in research and development, manufacturing, and sales by introducing a complete series of Gaming products in order to create even higher values for the Company and its shareholders. (�) Operating Performance in 2017 1.Consolidated financial results	company will continue to demonstrate its capabilities in research and development, manufacturing, and sales by introducing a complete series of Gaming products in order to create even higher values for the Company and its shareholders. (�) Operating Performance in 2017 1.Consolidated financial results	company will continue to demonstrate its capabilities in research and development, manufacturing, and sales by introducing a complete series of Gaming products in order to create even higher values for the Company and its shareholders. (�) Operating Performance in 2017 1.Consolidated financial results	company will continue to demonstrate its capabilities in research and development, manufacturing, and sales by introducing a complete series of Gaming products in order to create even higher values for the Company and its shareholders. (�) Operating Performance in 2017 1.Consolidated financial results
Unit: NT$thousands
Year Item	2017	2016	Growth amount	Growth rate
Sales revenue	106,419,905	102,190,503	4,229,402	4.14%
Grossprofit	15,031,293	14,951,670	79,623	0.53%
After-taxprofit	4,937,422	4,887,942	49,480	1.01%
Basic earnings per share(After-tax) (NT$)	5.84	5.79	0.05	0.86%
Diluted earnings per share (After-tax) (NT$)	5.79	5.73	0.06	1.05%

2. Profitability analysis

Item	Year	Financial Analysis for the Last Two-Years	Financial Analysis for the Last Two-Years
		2017	2016
Financial structure(%)	Debt to asset ratio (%)	43.44	46.72
	Long-term capital to property, plant and equipment(%)	554.91	535.60
Solvency(%)	Current ratio(%)	206.42	192.11
	Quick ratio(%)	122.23	115.93
	Interest earned ratio (times) (%)	178,404.56	226,291.61
Profitability (%)	Return on assets (%)	9.92	10.08
	Return on shareholders’equity (%)	18.05	18.57
	Profit ratio (%)	4.64	4.78
	Basic after-tax EPS(NT$)	5.84	5.79

3.Research and Development Status

As the leading brand in Gaming PCs, MSI believes that it has greater responsibilities and obligations to design products that meet the expectations of both the gamers and the market. Besides getting involved in the front line to interact directly with gamers and consumers, we also listen to and understand their demand and expectations for products, whether it is by forming an alliance with professional gaming teams or cooperating with other world-class manufacturers and innovative and well-reputed Gaming products are created accordingly to provide users with a complete full-range of Gaming ecosystem experiences; it is not just about hardware specification.

The flagship Gaming laptop GT75, in particular, has a 10G network card that is leading in the industry and the mechanical Per Key RGB keyboard. The mainstream GE series features unprecedented combination of RGB lighting and mainstream games so that the lighting is both story-based and functional. The proprietary Gaming Mode smart detection makes optimized environmental settings of the system possible upon entry to a game. Along with the keyboard hot keys, it enables even beginners to on the right track quickly. The panel also leads its counterparts in the industry. With introduction of the 120Hz/3ms panel, a higher update rate and faster reaction are possible. These are the breakthroughs that have been sought after a long time among gamers. In addition, for highly mobile populations, the GS super-thin series is introduced. It adds to the options available for consumers. The heat-sink technology marks a breakthrough in combining both “lightness and thinness” and “efficacy” that were impossible in the past. For the graphic cards, the high-performing Twin Frozr VI air-cooling module is adopted; along with the proprietary fan blade design, it ensures the steady overall operation of the system. The motherboard, on the other hand, is a continuation from the three major Gaming and Pro product lines. Full-range motherboard products are provided. The proprietary Mystic Light RGB lighting system and the M.2 Shield Frozr heat-sink module, in particular, can fully satisfy the needs of users. As far as desktop computer products are concerned, there is Aegis Gaming series for professional Gaming players. On the other hand, there is Infinite series with the unprecedented replaceable transparent tempered glass side plate design making a quick upgrade possible. To facilitate use in the living room, there is also the mini-Gaming Trident series known for its small-capacity, upgradable desktop display card and processor to make it the biggest competitor of general video game consoles.

In honor of its belief in true gaming, MSI has been devoted to providing Gaming players with the latest proprietary Gaming features so that gamers of different levels can enjoy the most precise and exquisite high-quality games. This is why multiple international media and awards have recognized it over the past years. MSI’s Gaming laptop GT83VR TITAN SLI, Gaming backpack VR One, Gaming desktop Vortex G25VR, X1000 industrial IOT broad-temperature waterproof gateway, and commercial telematics and multi-media audio-visual system solutions were all recognized by the raters at Computex 2017. In addition, during the 2017 Taiwan Excellence Award screening process, the Company defeated all the other manufacturers with a 95.2% winning rate. Moreover, Server products that combines the cloud idea is the best proof of MSI's capabilities and determination in devoting itself into the artificial intelligence and commercial and IOT market while satisfying customers’ demand for auto-electronics that combines the industrial computer and realizes personalized technology.

( � ) Operating Plan for 2018

To adjust to the future environment, MSI’s adopted operation guidelines, estimated goals and important sales strategies for 2018 are as follows:

1.Operation guideline

(1)Sales and marketing aspect: progressively explore new markets and new customers and establish a long-term entrusted stable business relationship with customers with potentials and sound financial status to create mutual benefits.

(2)Product R&D aspect: Develop products which meet users’ needs.

(3)Finance aspect: uphold the principle of steady and stable operation, and control various financial risks.

(4)Manufacturing, quality and service aspect: continue implementing automated manufacturing to increase quality and efficiency. Improve repair and services to enhance customer satisfaction.
Expected Sales and Rationales

The Company has a wide range of products. Besides continuing to develop the market for high-end products as it helps with robust growths of various types of products, the Company is also making concurrent efforts in the development and marketing of new products in order to increase the shipment. Room for growth is expected on the market for motherboards, graphic cards, laptops, desktop computers, Gaming monitors, Gaming peripheral products, servers, industrial computers, telematics, among others. MSI will aim to enhance the overall profits by proactively increasing the market shares of respective products. It is expected that up to 21 million pieces are possible for the component products shipment in 2018.

3.Important sales policies
(1)Production policy aspect: constantly observe the demand in the market and the change in suppliers’ capacities. To increase capacity utilization rate by adopting planned procurement of components. To adopt flexible production to reduce stock level yet fulfilling customer’s order demand. To observe the dynamic of supply chains and to ensure an effective production by labor resources, equipment, materials, and manufacturing methods.
(2)Sales policy aspect: to provide good quality products that fulfill customers’ need. To gain a win-win success in sales target with our customers.

Facing the challenge of current global IT industry environment changes and the dynamic, intense competition, MSI will stand by our hardcore RD strength, combining sales and marketing endeavors to achieve the goal of profit increase. We believe with the hard work of all the employees, our overall sales performance will hit continuous growth. I hereby on behalf of the MSI management team express our appreciation to all our shareholders, customers and suppliers. We also appreciate the hard efforts of all employees, directors and supervisors made during the past year. We hope our shareholders will keep supporting and encouraging us. We will work harder to achieve a greater performance and sales results to share with you.

Sincerely yours,

Chairman: Hsu, Hsiang

II. Introduction of the Company

( � )Establishment date: August 4, 1986

( � )Development history

2017	MSI VR One Backpack PC, GS63VR Stealth Pro gaming laptop and Z270 GAMING M7 gaming motherboard won CES 2017 Innovations Award.
	MSI has been awarded from Taiwan Excellence, including gaming NB, MB, VGA, Desktop and headset products.
	MSI won two iF Design Awards with Z270 TOMAHAWK gaming motherboard and Trident 3 gaming desktopPC.
2016	MSI GS40 Phantom, AIO Gaming 27XT, and Vortex Gaming Tower won CES 2016 Innovations Award.
	GT80 Titan won iF DESIGN AWARD 2016
	MSI GAMING notebook won Readers' Choice Awards 2016
2015	MSI GT72 Dominator Pro laptop, GS30 Shadow, AG240 4K Edition AIO and X99 GAMING 9 are prestigious CES Innovations 2015 honorees.
	MSI has been awarded from Taiwan Excellence for 17 consecutive years. 8 products are awarded, includingMB/VGA/NB/AIOproducts.
	Honored as World’s 4th Best Laptop Brand of 2015 and NO.1 in Ranking of Asian Brands by Laptop Magazine.
2014	MSI GS70 laptop and AG2712A gaming All-in-One PC are prestigious CES Innovations 2014 honorees.
	MSI has been awarded from Taiwan Excellence for 16 consecutive years. A total of 13 MSI products are awarded, including the Z87M GAMING motherboard, the GK-601 Dragon Edition gaming keyboard, the ultrathin GS70 laptop, the GT60 3K Edition laptop, the N780 Lightning graphics card, the AG2712AgamingAll-in-One PC and the Adora24 ultra-slim All-in-One PC.
	MSI Z97 XPOWER AC won COMPUTEX TAIPEI 2014 d&i and Best Choice Award
2013	The No. 1 and Only Best Choice Golden Awarded Motherboard- MSI Z87-GD65 GAMING
	MSI Taiwan Excellence Award Winner, 15 years of affirmation. Eleven product of the leading company are awarded
	MSI has won the 2013 CES Innovations Awards with the GT70 Dragon Edition notebook and the N680GTX Lightning graphics card.
2012	MSI X79 Series Mainboards break the World Record of 170MHz Base Clock and 5.83GHz CPU Clock of Sandy
	MSI GT70 notebook is the only winner awarded Buyer's Choice, Best Choice, and Media's Choice in Computex 2012.
	15 products of MSI got 2012 Taiwan Excellence Award.
	MSI Z68A-GD80 (G3) and GT780DXR won CES 2012 Innovations Award.
2011	MSI Won one of Top 100 Taiwan Brands Distinguished among 500 brands.
	All the 23 products MSI participated in Taiwan Excellence Award selection won the prize, WindTop AE2420 3D AIO won the Gold Award.
	MSI Z68A-GD80 (G3), GT780DXR and N460GTX Hawk receive CES Innovations Award Honors.
2010	X-Slim X340 was handed the Taiwan Excellence Silver Award and voted second most popular.
	MSI Big Bang-Fuzion mainboard and Telematics both won Best Choice of COMPUTEX.
	MSI participated in 2010 Taiwan Excellence Award selection, and all nominated products won the prize.
2009	MSI has been chosen as one of “2009 Top 50 Corporate Citizens” from CommomWealth Magazine (Issue 416) in Taiwan. MSI has been chosen as one of "2009 Top 70 CSR Excellent Enterprises" from Global Views magazine(Issue 273)in Taiwan.
	MSI Netbook & Car Infotainment product won the Best Choice of COMPUTEX TAIPEI 2009.
	Announced the world's power-saving No. 1 Netbook.

	Announced the 1st Ultra Slim Notebook.
	Announced the 1st All-in-One PC
2008	Announced the world's 1st Hybrid Storage Netbook.
	MSI has been ranked No. 19 of the Top 20 Taiwan Global Brands
	MSI has been awarded "16th Industrial Technology Advancement Awards" by the Ministry of Economic Affairs. "Excellent Enterprise Innovation Award" & "Individual Achievement Award" affirmed the MSI R&D innovation strategyand management.
	MSI is the only one winner of Best Enterprise of COMPUTEX TAIPEI 2008; MSI mainboard & notebook were honored to receive the "Best Choice of COMPUTEX TAIPEI 2008".
	Announced the 1st Car Infotainment product.
	Announced the world's 1st 10” Netbook product.
2007	Announced the 1st double-wheel and smart video & music interactive navigation service robot.
	The only one mainboard won the Best Choice of COMPUTEX 2007 award.
	Announced the world's 1st overclocking notebook.
	MSI Notebook (PR200) won the "Red Dot Award: Product Design 2007".
	Announced the world's 1st Crystal Collection Notebook product.
	Announced the world's 1st HATO Notebook (Concept Product).
2006	MSI CE products won the iF Design Award in Germany.
	MSI is the only one winner in Tom's Hardware Guide (Worldwide No. 1 online IT Media) Both "Editor's Choice awards for Intel P975 and P965platform.
	Announced the world's 1st Pocket Size DTV.
	Obtained UL QC 080000 hazardous substance process management system certification.
	Announced the world's 1st solar-powered notebook and MP3 Player product (Concept Product).
2005	MSI CE products won the iF Design Award in Germany.
2004	Announced the 1st Portable Multimedia Player product.
	MSI CE products won the Good Design Awards in Japan.
2003	Announced the 1st Notebook product.
	Obtained BVQI OHSAS 18000:1999 occupational health and safety management system certification.
	Announced the 1st Pen Tablet PC product
	Obtained UL QS 9000:1998 quality management system certification.
2002	Announced the world's 1st PC2PC WLAN mainboard.
	Announced the 1st MSI communication product.
	Announced the world's 1st PC2PC Bluetooth mainboard.
	Inaugurated its EU Hub in Netherlands.
2001	Established MSI Electronics (Kunshan) Co., Ltd.
	Established China service center in Shanghai.
	Announced the 1st Optical Device product.
	Inaugurated the MSI Plant �in Jung-He, Taipei County.
2000	Announced the 1st Server product.
	Established MSI Computer (Shenzhen) Co., Ltd.
1999	Obtained BVQI ISO 14001:1996 environmental management system certification.
1998	MSI became a public company as it went on IPO (Initial Public Offering) on the Taiwan Stock Exchange (TAIEX).

	Announced the industry's 1st mainboard designed for Socket 7 processor, which supports 100MHz FSB.
	Announced industry's 1st mainboard designed to support Dual PentiumR II processor.
1995	Inaugurated the MSI Plant I in Jung-He, the suburb of Taipei.
	Obtained TUV ISO 9001:1994 quality management system certification.
1991	Announced the 1st Graphics Card product.
1989	Announced the 1st Barebone product.
1988	Obtained TUV ISO 9002:1994 quality management system certification.
1986	Announced the 486 and 586 mainboards.
	MSI was established, focusing on the design and manufacture of Mainboards and Add-on Cards.
	Announced the 386DX mainboards.
	Announced the 1st overclocking 286 mainboards.

Corporate governance report

( )Corporate Organization 1. Organization Chart

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----- Start of picture text -----

Shareholders’ Meeting
Supervisors
Board of Directors
Internal Audit
office
Remuneration Committee
Chairman
Vice Chairman
President
Accounting & Finance
Administration Management
President Office
Human Resources
Desktop Platform Enterprise Platform Automotive & Industrial Platform Note Book Corp. Corp. Corp. Corp. Corp.
Solution B.U. Solution B.U. Commercial Solution Soluation B.U. B.U. R&D Sales & Production Quality Materials
B.U. Marketing Assurance
7
----- End of picture text -----

2.Major Corporate Function

Department	Functions
Internal Audit Office	To investigate and assess the soundness, suitability, adequacy, status of implementation, and operating performance of departmental internal controls.
President	To manage the corporate operation and development affairs, to set development and operationalgoals,and to supervise implementprocess.
President Office	To offer the general manager suggestions on policy decisions based on affair statistics with regard to organizational operations and development, including labor safety and health, legal affairs, intellectual property management, IT system development, corporate sustainable development plan,the use and maintenance of hardware and system software etc.
Each Products B.U.	Product development,sales and related business.
Corp.R&D	Design, development and quality control of products; process enhancement;and technologyimprovement.
Corp.Sales & Marketing	PO management, market cultivation, business information collection, and customer credit investigation.
Corp.Production	Product manufacturing.
Corp.Quality Assurance	Quality assurance, quality control, customer complaints, and post-delivery service.
Corp.Materials	Procurement, control and management of raw materials, and production schedulingand management.
Finance & Accounting Division	(A) Accounting Division: Accounting and billing affairs, voucher preparation, receipt review, and financial reports' preparation and analysis. (2)Finance Division: Fund dispatch, risk management, investment management, and registrar and transfer operation.
Administration Management	General affairs, public works, and asset management.
Human Resources Division	Personnel administration, employee benefits, health, training and education,and human resources development.

( ) Directors, Supervisors, President, Vice President, Assistant VP, and department heads

1. Directors and Supervisors

As of: April 17, 2018 Unit: Shares

Title	Nationality/ Country of Origin	Name	Gender	Date elected	Term (Years)	Date of first elected	Shareholding when elected	Shareholding when elected	Current Shareholding	Current Shareholding	Spouse & Minor Shareholding	Spouse & Minor Shareholding	Shareholding by Nominee Arrangement	Shareholding by Nominee Arrangement	Executives, Directors or Supervisors who are spouses or within two degrees	Executives, Directors or Supervisors who are spouses or within two degrees	Executives, Directors or Supervisors who are spouses or within two degrees
							Shares	%	Shares	%	Shares	%	Shares	%	Title	Name	Relation
Chairman.	R.O.C	Hsu,Hsiang	Male	2015.06.12	3	1986.07.23	51,983,151	6.15%	51,983,151	6.15%	18,864,257	2.23%	9,376,328	1.11%	Supervisor	Hsu,Fen-Lan	spouse
Vice Chairman		Huang,Chin-Ching	Male	2015.06.12	3	1986.07.23	23,637,377	2.80%	20,937,377	2.48%	2,148,564	0.25%	7,521,761	0.89%
Director		Lin,Wen-Tung	Male	2015.06.12	3	1986.07.23	29,672,499	3.51%	25,672,499	3.04%	62,895	0.01%	─	─
Director		Yu, Hsien-Neng	Male	2015.06.12	3	1986.07.23	17,892,824	2.12%	17,892,824	2.12%	1,079,304	0.13%	─	─
Director (Note 1)		Lu,Chi-Long	Male	2015.06.12	3	1986.07.23	19,374,835	2.29%	18,650,835	2.21%	1,9658,350	0.23%	─	─
Director (Note 1)		Chiang,Sheng-Chang	Male	2015.06.12	3	2009.06.16	1,117,074	0.13%	1,117,074	0.13%	0	0.00%	─	─
Director		Tsai,Rong-Fong	Male	2015.06.12	3	2009.06.16	595,293	0.07%	297,647	0.04%	297,646	0.04%	─	─
Independent Director (Note 1)		Wang,Sung-Chou	Male	2015.06.12	3	2003.05.28	0	0.00%	0	0.00%	468	0.00%	─	─
Independent Director		Liu ,Cheng-Yi	Male	2015.06.12	3	2012.06.15	0	0.00%	0	0.00%	0	0.00%	─	─
Supervisor (Note1)		Hsu,Fen-Lan	Female	2015.06.12	3	1997.04.19	13,408,517	1.59%	13,408,517	1.59%	57,438,891	6.80%	9,376,328	1.11%	Chairman	Hsu,Hsiang	spouse
Supervisor		Hsu,Jun-Shyan	Male	2015.06.12	3	1997.04.19	821,415	0.10%	414,415 (Note2)	0.05%	475,000	0.06%	─	─

Title	Name	Education		Current Job
		Experience	Title	Representative
Chairman	Hsu,Hsiang	The electronic engineering from National Cheng Kung University.	The Chairman & President of MSI Director & President of MICRO-STAR NETHERLANDS HOLDING B. V.	MICRO STAR INTERNATIONAL CO., LTD.
		The engineer of Sony Industries Taiwan Co., Ltd.
Vice Chairman	Huang,Chin-Ching	The electronics from Chung Yuan Christian University.	The Vice Chairman and Senior Vice President of MSI Director & President of the following companies: MSI COMPUTER (AUSTRALIA) PTY. LTD. MSI ELECTRONIC (KUNSHAN) CO., LTD. MSI COMPUTER CAYMAN CO., LTD. Director of the following companies: MSI COMPUTER CORP. MYSTAR COMPUTER B.V. MSI COMPUTER JAPAN CO., LTD. MSI TECHNOLOGY GMBH MSI COMPUTER SARL LLC“MSI Computer” MSI ITALY S.R.L. MSI COMPUTER TECHNOLOGIES LIMITED COMPANY MSI COMPUTER(UK)LTD.	MICRO STAR INTERNATIONAL CO., LTD. MICRO ELECTRONICS MSI CAYMAN MICRO STAR INTERNATIONAL CO., LTD. MSI(HOLDING) MICRO STAR INTERNATIONAL CO., LTD. MSI(HOLDING) MSI(HOLDING) MSI (HOLDING) MSI (HOLDING) MSI (HOLDING) MSI(HOLDING)
		The engineer of Sony Industries Taiwan Co., Ltd.

Director	Lin,Wen-Tung	The electronic engineering from the Lien Ho Industrial and Technological Junior College.	The Senior Vice President of MSI Director & President of MSI COMPUTER JAPAN CO., LTD. Director of the following companies: MSI COMPUTER (AUSTRALIA) PTY. LTD. MSI KOREA CO.,LTD.	MICRO STAR INTERNATIONAL CO., LTD. MICRO STAR INTERNATIONAL CO., LTD. MSI PACIFIC
		The engineer of Sony Industries Taiwan Co., Ltd.
Director	Yu,Hsien-Neng	The electronics from Feng Chia University.	The Senior Vice President of MSI Director & President of the following companies: MICRO-STAR INTERNATIONAL (B.V.I) HOLDING CO., LTD. MSI COMPUTER (SHENZHEN) CO., LTD. SHENZHEN MEGA INFORMATION CO., LTD. MSI POLSKA SP. Z O.O Director of MSI COMPUTER CORP.	MSI PACIFIC MSI(B.V.I.) MEGA INFORMATION MSI HOLDING MICRO STAR INTERNATIONAL CO.,LTD.
		The engineer of Sony Industries Taiwan Co., Ltd.
Director	Lu,Chi-Long	The electronics from National Taiwan University of Science and Technology.	The Senior Vice President of MSI
		The engineer of SonyIndustries Taiwan Co.,Ltd.
Director	Chiang,Sheng-Chang	The institute of electronics from National Chiao TungUniversity.	The Executive Vice President of MSI The President of the DPS BU of MSI
		The assistant vicepresident of ALi Corporation.
Director	Tsai,Rong-Fong	The electronics from Chung Yuan Christian University.	The President of the EPS BU of MSI
		The General Manager of DTK Technology(HongKong).
Independent Director	Wang,Sung-Chou	The master of business administration from National Chengchi University.	Independent Director of MICRO STAR INTERNATIONAL CO., LTD. Director of the following companies: Kae Lee Investment Co., Ltd. Shiningvision Inc. Supervisor of the following companies: Videoland Inc. KK Enterprise Co., Ltd. Taiwan Sports Lottery Company	Natural Talent Holdings Limited
		Director of the KGI INVESTMENT ADVISORY CORPORATION China Securities Co., Ltd.( now KGI Securities Co., Ltd.) Supervisor of the GARND PACIFIC PETROCHEMICAL CORPORATION
Independent Director	Liu ,Cheng-Yi	The master of science in finance from The City University of New York.	Independent Director of the following companies: MICRO STAR INTERNATIONAL CO., LTD. JOCHU TECHNOLOGY CO., LTD.
		Director of Administration Division of Micro Star International Co., Ltd. Supervisor of TXC CORPORATION The Assistant Manager of Twin Head International Corp.
Supervisor	Hsu,Fen-Lan	The master of business administration from Universityof South Australia	Supervisor of MSI COMPUTER JAPAN CO., LTD. Director of the following companies: MSI COMPUTER (SHENZHEN) CO., LTD. MSI ELECTRONIC (KUNSHAN) CO., LTD. STAR INFORMATION HOLDING CO., LTD. MICRO ELECTRONICS HOLDING CO., LTD. MSI PACIFIC INTERNATIONAL HOLDING CO., LTD. MSI KOREA CO., LTD. MEGA INFORMATION HOLDING CO., LTD. SHENZHEN MEGA INFORMATION CO., LTD. MEGA TECHNOLOGY HOLDING CO., LTD. MEGA COMPUTER CO., LTD. MHK INTERNATIONAL CO.,LTD.	MICRO STAR INTERNATIONAL CO., LTD. MSI(B.V.I.) MICRO ELECTRONICS MSI PACIFIC MSI PACIFIC MICRO STAR INTERNATIONAL CO., TD. MSI PACIFIC MSI PACIFIC MEGA INFORMATION MSI PACIFIC MSI PACIFIC MSI PACIFIC
		Director of Micro Star International Co., Ltd.
Supervisor	Hsu,Jun-Shyan	The master of accounting from National Taipei University.	Accountant of Chung Feng Accounting Firm
		TUNG SHING & CO. C.P.A.

Note 1 Mr. Lu, Chi-Long, existing director between July 23, 1986 and June 15, 2012, was elected again on 2015.6.12; Mr. Chiang, Sheng-Chang, existing director between June 16, 2009 and June 15, 2012, was elected again on June 12, 2015; Mr. Wang, Sung-Chou, existing director between May 28, 2003 and June 14, 2006 and independent director between June 14, 2006 and June 16, 2009, was elected again as independent director on June 15, 2012 and June 12, 2015; Miss Hsu, Fen-Lan, existing director between April 19, 1997 and May 28, 2003 was elected as supervisor on May 28, 2003. Note 2 Current shareholding excluding number of shares under trust with discretion reserved: 1,100,000 shares.

Criteria Name	With over fiveyears ofjob experience and the followingbusinessqualification	With over fiveyears ofjob experience and the followingbusinessqualification		Independence Criteria(Note)	Independence Criteria(Note)	Independence Criteria(Note)	Independence Criteria(Note)	Independence Criteria(Note)	Independence Criteria(Note)	Independence Criteria(Note)	Independence Criteria(Note)	Independence Criteria(Note)	Independence Criteria(Note)	Also an independent director of other public company
	Teachers of public or private colleges for the subject of commerce, law, finance, accounting,or business	Judge, prosecutor, attorney, accountant, or business salespersons passed national exam & certified specialists or technicians	With job experience in commerce, law, finance, accounting,or business	1	2	3	4	5	6	7	8	9	10
Hsu,Hsiang			v					v		v	v	v	v	0
Huang,Chin-Ching			v				v	v		v	v	v	v	0
Lin,Wen-Tung			v				v	v		v	v	v	v	0
Yu, Hsien-Neng			v				v	v		v	v	v	v	0
Lu,Chi-Long			v		v		v	v	v	v	v	v	v	0
Chiang,Sheng-Chang			v		v	v	v	v	v	v	v	v	v	0
Tsai,Rong-Fong			v		v	v	v	v	v	v	v	v	v	0
Wang,Sung-Chou		v	v	v	v	v	v	v	v	v	v	v	v	0
Liu ,Cheng-Yi			v	v	v	v	v	v	v	v	v	v	v	1
Hsu,Fen-Lan			v	v				v		v		v	v	0
Hsu,Jun-Shyan		v	v	v	v	v	v	v	v	v	v	v	v	0

Note: Directors and supervisors who have qualified the following conditions two years before being elected and during the term are to tick the box of the corresponding condition.

1.Not an employee of the company or any related party;

2.Not a director or supervisor of the company or any related party (except for being an independent director of the company or any related party, or, the subsidiary that is with over 50% shareholding with voting rights held directly or indirectly by the company);
3.Does not hold more than 1% of total stock issued directly or indirectly nor a natural shareholder on the top-ten shareholdings list;
4.Not the spouse nor a relative within two degrees of lineal consanguinity of an individual falling in the first three categories;
5.Not a Director, Supervisor, or employee of the legal shareholder that holds over 5% of total stock issued directly or indirectly; or on the top-five shareholdings list of the Company;
6.Not a Director (executive), Supervisor, management, or a shareholder with over 5% shareholdings of accompany or organization that is in business with the Company;

7.Not an owner, partner, Director, Supervisor, management of a partnership or institution and his/her spouse that provides commerce, law, finance, accounting and consulting service to the Company or related party. Including but not limited to Regulations Governing the Appointment and Exercise of Powers by the Remuneration Committee of a Company Whose Stock is listed on the Stock Exchange or Traded Over the Counter and the Remuneration Committee in accordance with the Power Exercise described in Article.

8.Not the spouse nor a relative within two degrees of lineal consanguinity of an individual;
9.Free of any of the behaviors as defined in Article 30 of Company Act;

10.Not a governmental officer, juridical person or its representative as defined in Article 27 of Company Act.

2. Information of the management

												Base Date: April 17,2018 Unit: Shares	Base Date: April 17,2018 Unit: Shares	Base Date: April 17,2018 Unit: Shares	Base Date: April 17,2018 Unit: Shares
Title	Nationality /Country of Origin	Name	Gender	Date Elected	Shareholding		Spouse & Minor Shareholding		Shareholding by Nominee Arrangement		Experience (Education)	Other Position	Managers who are Spouses or Within Two Degrees of ShareholdingKinship
					Shares	%	Shares	%	Shares	%			Title	Name	Relation
Chairman & President	R.O.C	Hsu,Hsiang	Male	1994.4	51,983,151	6.15%	18,864,257	2.23%	9,376,328	1.11%	The electronic engineering from National Cheng Kung University. The engineer of Sony Industries Taiwan Co.,Ltd.	Refer to page9
Vice Chairman & Senior Vice President of NB BU/Corp. R&D		Huang,Chin-Ching	Male	2001.7	20,937,377	2.48%	2,148,564	0.25%	7,521,761	0.89%	The electronics from Chung Yuan Christian University. The engineer of Sony Industries Taiwan co.,Ltd.	Refer to page9
Senior Vice President of Corp. Materials		Lin,Wen-Tung	Male	2001.7	25,672,499	3.04%	62,895	0.01%	─	─	The electronic engineering from the Lien Ho Industrial and Technological Junior College. The engineer of Sony Industries Taiwan co.,Ltd.	Refer to page10
Senior Vice President of Corp. Manufacture		Yu,Hsien-Neng	Male	2001.7	17,892,824	2.12%	1,079,304	0.13%	─	─	The electronics from Feng Chia University. The engineer of Sony Industries Taiwan co.,Ltd.	Refer to page10
Senior Vice President of Corp. Sales and Marketing		Lu,Chi-Long	Male	2001.7	18,650,835	2.21%	1,965,350	0.23%	─	─	The electronics from National Taiwan University of Science and Technology. The engineer of Sony Industries Taiwan co.,Ltd.	None
Executive Vice President of MSI & President of the DPS B.U.		Chiang,Sheng-Chang	Male	2010.3	1,117,074	0.13%	0	0.00%	─	─	The institute of electronics from National Chiao Tung University. The assistant vice president of ALi Corporation.	None
President of the EPS B.U.		Tsai,Rong-Fong	Male	2010.3	297,647	0.04%	297,646	0.04%	─	─	The electronics from Chung Yuan Christian University. The General Manager of DTK Technology (HongKong).	None
Vice President of Corp. R&D		Teng,Chi-Hung	Male	2010.3	543,183	0.06%	1,124	0.00%			The institute of electronics from National Chiao Tung University. Ali Corporation Technical Manager	None
Vice President of NB BU Sales&Marketing Division		Kuo,Hsu-Kuang	Male	2013.4	0	0.00%	0	0.00%			The master of business administration from University of Southern Queensland The manager of Chun-ShengComputer	None
Vice President of Corp. Manufacture		Li,Chao-Ming	Male	2010.3	11,498	0.00%	0	0.00%			The master of mechanical system from University of Liverpool ACER INCORPORATED Manager	None

Senior Special Assistant of President Office Business Planning	Tsai,Wei-Hsin	Male	2010.3	77	0.00%	0	0.00%	Chinese Culture University Department of International Business Administration LITE-ON TECHNOLOGY CORP. Communications Group Accounting Department Assistant Vice President	None
President of IPS B.U.	Lu,Hui-Chang	Male	2012.4	1,000	0.00%	13,188	0.00%	The master of business administration from Macau University of Science and Technology International Currency Technology Corp. Special Assistant	None
Vice President of Corp. Sales & Marketing	Hung,Yu-Sheng	Male	2012.4	306,660	0.04%	0	0.00%	ITI International Business Administration Program Shih Chien College of Design and Management MA of Pou Chen Group	Director & President of the following companies: MSI TECHNOLOGY GMBH(MSI HOLDING Representative) MSI COMPUTER SARL(MSI HOLDING Representative) MSI COMPUTER EUROPE B.V. (MSI HOLDING Representative) LLC “MSI COMPUTER” (MSI HOLDING Representative) MSI ITLAY S.R.L. (MSI HOLDING Representative) MYSTAR COMPUTER B.V. (MSI HOLDING Representative) MSI COMPUTER (UK) LTD. (MSI HOLDING Representative) MSI COMPUTER TECHNOLOGIES (MSI HOLDING Representative) LIMITED COMPANY(MSI HOLDING Representative) The Executive Director of the following companies: MSI (Shenzhen) Co., Ltd. (STAR INFORMATION HOLDING CO., LT Representative) MSI (Shanghai) Co., Ltd. (MSI PACIFIC Representative)
Vice President of NB BU R&D Division	Lin,Chin-Kuan	Male	2014.4	370,375	0.04%	0	0.00%	Institute of Electrical and Control Engineering from National Chiao Tung University Wistron Corporation Manager	None
Vice President of Multimedia Sales Division	Liao,Chun-Keng	Male	2014.4	35,000	0.00%	0	0.00%	The master of business administration from University of South Australia The Sales Manager of Magic Systech Inc.	None
Vice President of EPS BU Sales&Marketing Division	Lu,Cheng-Lung	Male	2015.4	91,555	0.01%	0	0.00%	Department of Business Administration, Tamkang University JUMBO POWER TRADING CO., LTD. Special Assistant	None

Vice President of Corp. Sales & Marketing	Chiu,Chih-Keng	Male	2015.4	152,925	0.02%	0	0.00%	Institute of Technology and Industrial Engineering from St. John’s & St. Mary’s College DTK Computer M.D.	None
Vice President of NB Product Mgt. Division	Peng,Jen-Fang	Male	2017.4	159,671	0.02%	0	0.00%	National Taiwan University of Science and Technology	None
Vice President of NB BU R&D Division	Lu,Kuo-Huang	Male	2017.4	0	0.00%	0	0.00%	Hwa Hsia Institute of Agricultural Technology	None
Vice President of Finance & Accounting Division	Hung,Pao-Yu	Female	2016.4	343,218	0.04%	0	0.00%	Finance MBA, National Taiwan University President Securities Corp. Underwriting Department Manager	Director of the following companies: MSI COMPUTER (SHENZHEN) CO., LTD. (MSI(B.V.I.)Representative) MSI ELECTRONIC (KUNSHAN) CO., LTD (MICRO ELECTRONICS Representative) SHENZHEN MEGA INFORMATIO CO., LTD. (MEGA INFORMATION Representative) Supervisor of the following companies: MSI KOREA CO., LTD.(MSI PACIFI Representative) MSI TRADING (SHENZHEN) CO., LTD. (MEGA TECHNOLOGY HOLDING CO., LTD. Representative) MSI (Shenzhen) Co., Ltd. (STAR INFORMATION HOLDING CO., LT Representative) MSI (Shanghai) Co., Ltd. (MSI PACIFIC Representative)	N
Assistant Vice President of Internal Auditing Office	Liu,Chu-Hao	Male	2010.3	10,000	0.00%	19,609	0.00%	Department of Accounting, Tamkang University Mag Technology Co., Ltd. Audit Assistant Manager	The Executive Director of MSI TRADING (SHENZHEN) CO., LTD.(MEGA TECHNOLOGY HOLDING CO., LTD. Representative) Supervisor of MSI ELECTRONIC (KUNGSHAN) CO., LTD (MICRO ELECTRONICS Representative)

( )Remuneration paid during the most recent fiscal year to directors, supervisors, president and vice presidents

1.Remuneration of Directors, Supervisors

(1) Remuneration of Directors (including Independent Directors)

Unit NT$

																						Unit NT$
Title	Name	Remuneration of Directors								Ratio of Total Remuneration (A+B+C+D) to Net Income(%)		Remuneration received byDirec				tors who are also employees				Ratio of Total Compensation (A+B+C+D+E+F+G) to Net Income(%)		Compensation Paid to Directors from an Invested Company Other than the Company’s Subsidiary
		Base Compensation(A)		Severance Pay(B)		Remuneration to Directors (C)		Allowances(D)				Salary, Bonuses, and Allowances(E)		Severance Pay (F)		Remuneration to Employee(G)
		MSI	Companies in the consolidated financial statements	MSI	Companies in the consolidated financial statements	MSI	Companies in the consolidated financial statements	MSI	Companies in the consolidated financial statements	MSI	Companies in the consolidate financial statements	MSI	Companies in the consolidate financial statements	MSI	Companies in the consolidated financial statements	MSI		Companies in the consolidated Financial statements		MSI	Companies in the consolidated financial statements
																Cash amount	Stock amount	Cash amount	Stock amount
Chairman	Hsu,Hsiang	0	0	0	0	35,100,000	35,100,000	0	0	0.71%	0.71%	87,281,873	87,281,873	0	0	31,000,000	0	31,000,000	0	3.11%	3.11%	None
Vice Chairman	Huang,Chin-Ching
Director	Lin,Wen-Tung
Director	Yu,Hsien-Neng
Director	Lu,Chi-Long
Director	Chiang,Sheng-Chang
Director	Tsai,Rong-Fong
Independent Director (Note)	Wang,Sung-Chou
Independent Director (Note)	Liu,Cheng-Yi
*Remuneration received in the most recentyear bythe director of the companyfor renderingservices(such as servingas a non-employed consultant)to anycompanylisted in the Financial Report None.

Note: Mr. Wang, Sung-Chou, existing director between May 28, 2003 and June 14, 2006 and independent director between June 14, 2006 and June 16, 2009, was elected again as independent director on June 15, 2012 and June 12, 2015; Mr. Liu, Cheng-Yi was elected as independent director on June 15, 2012 and June 12, 2015.

		Remuneration Bracket
Range of Remuneration		Name of Direct	ors
	Tota	l of(A+B+C+D)	Total of(A+B+C+D+E+F+G)
	MSI	Companies in the consolidated financial statements H	MSI	Companies in the consolidated financial statements ( )
Below 2,000,000
2,000,000 5,000,000	Hsu,Hsiang Huang,Chin-Ching Lin,Wen-Tung Yu, Hsien-Neng Lu,Chi-Long Chiang,Sheng-Chang Tsai,Rong-Fong Wang,Sung-Chou Liu ,Cheng-Yi	Hsu,Hsiang Huang,Chin-Ching Lin,Wen-Tung Yu, Hsien-Neng Lu,Chi-Long Chiang,Sheng-Chang Tsai,Rong-Fong Wang,Sung-Chou Liu ,Cheng-Yi	Wang,Sung-Chou Liu ,Cheng-Yi	Wang,Sung-Chou Liu ,Cheng-Yi
5,000,000 10,000,000
10,000,000 15,000,000
15,000,000 30,000,000			Hsu,Hsiang Huang,Chin-Ching Lin,Wen-Tung Yu, Hsien-Neng Lu,Chi-Long Chiang,Sheng-Chang Tsai,Rong-Fon	Hsu,Hsiang Huang,Chin-Ching Lin,Wen-Tung Yu, Hsien-Neng Lu,Chi-Long Chiang,Sheng-Chang Tsai,Rong-Fon
30,000,000 50,000,000
50,000,000 100,000,000
Over 100,000,000
Total	35,100,000	35,100,000	153,381,873	153,381,873

(2) Remuneration of Supervisors

										Unit NT$
Title	Name			Remuneration				Ratio of Total Remuneration (A+B+C) to Net Income (%)		Compensation Paid to supervisors from an Invested Company Other than the Company’s Subsidiary
		Base Remuneration(A)		Remuneration(B)		Allowances(C)
		MSI	Companies in the consolidated financial statements	MSI	Companies in the consolidated financial statements	MSI	Companies in the consolidated financial statements	MSI	Companies in the consolidated financial statements
Supervisor	Hsu,Fen-Lan	0	0	7,800,000	7,800,000	0	0	0.16%	0.16%	None
Supervisor	Hsu,Jun-Shyan

Remuneration Bracket

	Remuneration Bracket	Remuneration Bracket
Range of Remuneration	Name of Supervisors
	A+B+C
	MSI	Companies in the consolidated financial statements(D)
Below 2,000,000
2,000,000 5,000,000	Hsu,Fen-Lan Hsu,Jun-Shyan	Hsu,Fen-Lan Hsu,Jun-Shyan
5,000,000 10,000,000
10,000,000 15,000,000
15,000,000 30,000,000
30,000,000 50,000,000
50,000,000 100,000,000
Over 100,000,000
Total	7,800,000	7,800,000

Unit NT$

2. Remuneration of President and Vice Presidents

														Unit NT$
Title	Name	Salary(A)		Sever	ance Pay(B)	Bonuses and	Allowances (C)	R	emuneratio	n to Employee(D)		Ratio of tot (A+B+C+D) t i	al compensation o net ncome(%)	Compensation paid to the President and Vice President from an Invested Company Other Than the Company’s Subsidiary
		MSI	Companies in the consolidated financial statements	MSI	Companies in the consolidated financial statements	MSI	Companies in the consolidated financial statements	M	SI	Companies in the consolid financial statem	ated ents	MSI	Companies in the consolidated financial statements
								Cash amount	Stock amount	Cash amount	Stock amount
Chairman & President	Hsu,Hsiang	62,163,473	62,163,473	1,404,000	1,404,000	114,091,000	114,091,000	58,600,000	0	58,600,000	0	4.79%	4.79%	None
Vice Chairman & Senior Vice President of NB BU/Corp. R&D	Huang,Chin-Ching
Senior Vice President of Corp. Materials	Lin,Wen-Tung
Senior Vice President of Corp. Manufacture	Yu,Hsien-Neng
Senior Vice President of Corp. Sales and Marketing	Lu,Chi-Long
Executive Vice President of MSI & President of the DPS B.U.	Chiang,Sheng-Chang
President of the EPS B.U.	Tsai,Rong-Fong
Vice President of Corp. R&D	Teng,Chi-Hung
Vice President of NB BU Sales&MarketingDivision	Kuo,Hsu-Kuang
Vice President of Corp. Manufacture	Li,Chao-Ming
Senior Special Assistant of President Office Business Planning	Tsai,Wei-Hsin
President of IPS B.U.	Lu,Hui-Chang
Vice President of Corp. Sales & Marketing	Hung,Yu-Sheng
Vice President of NB BU R&D Division	Lin,Chin-Kuan
Vice President of Multimedia Sales Division	Liao,Chun-Keng
Vice President of EPS BU Sales&MarketingDivision	Lu,Cheng-Lung
Vice President of Corp. Sales & Marketing	Chiu,Chih-Keng
Vice President of NB Product Mgt. Division	Peng,Jen-Fang
Vice President of NB BU R&D Division	Lu,Kuo-Huang
Vice President of Finance & AccountingDivision	Hung,Pao-Yu

Remuneration Bracket

Range of Remuneration	Range of Remuneration	Name of President and Vice President	Name of President and Vice President	Name of President and Vice President
		MSI			Companies in the consolidated financial statements E
Below 2,000,000
2,000,000 5,000,000
5,000,000 10,000,000		Tsai,Wei-Hsin Lu,Hui-Chang Lu,Cheng-Lung Chiu,Chih-Keng Peng,Jen-Fang Lu,Kuo-Huang Hung,Pao-Yu			Tsai,Wei-Hsin Lu,Hui-Chang Lu,Cheng-Lung Chiu,Chih-Keng Peng,Jen-Fang Lu,Kuo-Huang Hung,Pao-Yu
10,000,000 15,000,000		Teng,Chi-Hung Li,Chao-Ming Tsai,Rong-Fong Hung,Yu-Sheng Lin,Chin-Kuan Liao,Chun-Keng Kuo,Hsu-Kuang			Teng,Chi-Hung Li,Chao-Ming Tsai,Rong-Fong Hung,Yu-Sheng Lin,Chin-Kuan Liao,Chun-Keng Kuo,Hsu-Kuang
15,000,000 30,000,000		Hsu,Hsiang Huang,Chin-Ching Lin,Wen-Tung Yu, Hsien-Neng Lu,Chi-Long Chiang,Sheng-Chang			Hsu,Hsiang Huang,Chin-Ching Lin,Wen-Tung Yu, Hsien-Neng Lu,Chi-Long Chiang,Sheng-Chang
30,000,000 50,000,000
50,000,000 100,000,000
Over 100,000,000
	Total	236,258,473			236,258,473
		Names of managers receivingremuneration to employees,and status of allocation thereof
Managers	Title		Name	Stock Amount		Cash Amount	Total	Ratio of Total Amount to Net Income(%)
	Chairman & President		Hsu,Hsiang	0		60,000,000	60,000,000	1.22%
	Vice Chairman & Senior Vice President of NB BU/Corp. R&D		Huang,Chin-Ching
	Senior Vice President of Corp. Materials		Lin,Wen-Tung
	Senior Vice President of Corp. Manufacture		Yu,Hsien-Neng
	Senior Vice President of Corp. Sales and Marketing		Lu,Chi-Long
	Executive Vice President of MSI & President of the DPS B.U.		Chiang,Sheng-Chang
	President of the EPS B.U.		Tsai,Rong-Fong
	Vice President of Corp. R&D		Teng,Chi-Hung
	Vice President of NB BU Sales&MarketingDivision		Kuo,Hsu-Kuang
	Vice President of Corp. Manufacture		Li,Chao-Ming
	Senior Special Assistant of President Office Business Planning		Tsai,Wei-Hsin
	President of IPS B.U.		Lu,Hui-Chang
	Vice President of Corp. Sales & Marketing		Hung,Yu-Sheng
	Vice President of NB BU R&D Division		Lin,Chin-Kuan
	Vice President of Multimedia Sales Division		Liao,Chun-Keng
	Vice President of EPS BU Sales & MarketingDivision		Lu,Cheng-Lung
	Vice President of Corp. Sales & Marketing		Chiu,Chih-Keng
	Vice President of NB Product Mgt. Division		Peng,Jen-Fang
	Vice President of NB BU R&D Division		Lu,Kuo-Huang
	Vice President of Finance & AccountingDivision		Hung,Pao-Yu
	Assistant Vice President of Internal AuditingOffice		Liu,Chu-Hao

3.Compare and state the ratio of total remuneration paid to the company’s Directors, Supervisors, President, and V.P. by the company and the companies in the consolidated financial statements to net income in the last two years; also, describe the policy, standard, and combination of remuneration paid; moreover, the procedure of defining remuneration and its relation to business performance and future risks.

(1)Analyze the ratio of the total remuneration paid to the company’s Directors, Supervisors, President, and V.P. in the last two years to net income:

Year Item	Directors & Supervisors	Directors & Supervisors	President and Vice President	President and Vice President
	Ratio of the total remuneration paid to the company’s Directors, Supervisors in the last two years to net income		Ratio of the total remuneration paid to the President, and V.P. in the last two years to net income
	2017	2016	2017	2016
	0.87%	0.83%	4.79%	4.53%
1.Policies of remuneration	Articles 19-1 of Incorporation of Micro-Star International Co., Ltd. The pre-tax income of the current fiscal year shall first offset the accumulated deficits. If the balance is positive, then the Company shall allocate the remuneration to be distributed to employees, directors and supervisors in accordance with the following ratio. Employee remuneration in the percentage of 6% to 10%. Individuals eligible for employee remuneration include the Company’s employees and the employees of the Company’s subsidiaries meeting certain requirements. Such requirements are to be set by the Board of Directors. Remuneration to be distributed to directors and supervisors shall not exceed 1%. The decision of the percentage of remuneration to be distributed to employees, directors and supervisors set forth in the preceding Paragraph, the forms of distribution (cash or stock dividends) and the amounts and shares thereof shall be made through the special resolutions of the Board of Directors and reported to the shareholders’ meeting.		Carried out in accordance with the Company’s Remuneration Management Regulations, Performance Review Regulation, Employee Bonus Evaluation and Distribution Rules.
2.Criteria and composition of remuneration	Remunerations for directors and supervisors of the Company are equally devided by the number of directors and supervisors.		Includes base salary, Duty allowance and performance bonuses.
3.Procedures to fix remuneration	Resolved by the board meeting, and approved by the general meeting of shareholders.		Based on their educational and professional backgrounds.
4.Interrelationship with MSI business	Based on the Company’s performance and profitability.		Remuneration is paid based on target achievement rate, performance, profitability and contribution of the respective.

(2) Except for the Company, all the other companies included in the Consolidated Statement did not pay remunerations for the directors, supervisors, president, and vice presidents of the Company.

( ) Corporate governance

1.Board of Directors

The Board had 10 (A) meetings during 2017/1/1~2018/5/3:

Title	Name	Attendance in Person(B)	By Proxy	Attendance Rate(%) (B/A)	Remarks
Chairman	Hsu,Hsiang	10	0	100.00%
Vice Chairman	Huang,Chin-Ching	7	3	70.00%
Director	Lin,Wen-Tung	9	1	90.00%
Director	Yu,Hsien-Neng	7	3	70.00%
Director	Lu,Chi-Long	8	2	80.00%
Director	Chiang,Sheng-Chang	8	2	80.00%
Director	Tsai,Rong-Fong	8	2	80.00%
Independent Director	Wang,Sung-Chou	10	0	100.00%	Note
Independent Director	Liu,Cheng-Yi	10	0	100.00%	Note
Supervisor	Hsu,Fen-Lan	10	-	100.00%
Supervisor	Hsu,Jun-Shyan	8	-	80.00%
Note: Both independent directors attended in person in 2017 and up to date till the Annual Report printed (with an attendance rate of 100%).
Other mentionable items: 1. Where one of the following circumstances apply for the operations of the Board of Director meetings, the date, session, topic discussed, opinions of every independent directors, and actions of the independent directors’ opinions shall be explained: (1) Any one of the matters listed in Article 14-3 of the Securities and Exchange Act: For resolutions of this Corporation on matters listed in Article 14-3 of the Securities and Exchange Act, there are no dissenting or qualified opinions from the independent director. (2) In addition to the aforementioned matters, any other resolutions from the Board of Directors where an independent director expressed dissenting or qualified opinions that have been recorded or stated by writ: None 2.If there are directors’ avoidance of motions in conflict of interest, the directors’ names, contents of motion, causes for avoidance and voting should be specified: (1)Date 2017.1.20!2017.3.24!2017.7.24!2017.10.6!2018.2.2!2018.3.23 Directors’ names Hsu,Hsiang !Huang,Chin-Ching !Lin,Wen-Tung !Yu, Hsien-Neng !Tsai,Rong-Fong !Lu,Chi-Long !Chiang,Sheng-Chang Proposal: Remuneration Proposal. Reason for recusal upon conflicts of interest and voting status: The Board reminded in advance, due to conflicts of interest, should not provide each directors’ remuneration at the meeting. Hsu,Hsiang"Huang,Chin-Ching, Lin,Wen-Tung, Yu, Hsien-Neng, Lu,Chi-Long, Chiang,Sheng-Chang, Tsai,Rong-FonG did not take part in the discussions and the voting session, due to conflictsof interest. 3.Measures taken to strengthen the functionality of the board: The Board of Directors has established a Remuneration Committee to assist the board in carrying out its various duties. (1) Voluntarily to establish Independent directors in 2012. (2) To accommodate electronic voting during shareholders’ meetings, the Articles of Incorporation were revised on June 17, 2014, and the nomination system is adopted for the election of Board members. (3) Proposals in shareholders’ meetings between 2014 to 2016 were voted on one by one and recorded the results of agree, against, and given up of each proposal in the meeting minutes. (4)The average attendance rate of all directors at thisperiod(from June 12, 2015 upto date Annual Reportprinted)was 89.39%#

2. Audit Committee or Attendance of Supervisors at Board Meetings:

(1)Attendance of Supervisors at Board Meetings: total 10 (A) meetings were held at this period.

The attendance of supervisors was as follows:

Title	Name	Attendance in Person (B)	Attendance Rate (%) $%/ & '
Supervisor	Hsu,Fen-Lan	10	100.00%
Supervisor	Hsu,Jun-Shyan	8	80.00%
Other mentionable items: 1. Composition and responsibilities of supervisors: (1) Communication between supervisors and company employees and shareholders: The Company has Supervisor’s Officefor communications. (2) Communication between supervisors and internal auditors and CPAs: A. During the month following completion of an audit, the internal auditor submits the audit report to the supervisor and the supervisor replies with opinions after having reviewed the report. B. The head of Internal Audit Office is seated in the Board meeting to give a presentation on the audit findings and exchange opinions with the supervisor. C. The CPA periodically discusses with the head of Internal Audit Office about related deficiencies found during the internal audit and exchange opinions with the supervisor with regard to deficiencies found with corporate governance and the internal control process during the audit. 2. If a supervisor expresses an opinion during the Boardmeetings, the dates of the meetings, sessions, contents of motion, resolutions of the meetings and the company’s response to the supervisor’s opinion should be specified: None

(2)Operations of the Audit Committee The Company has yet to establish an Audit Committee.

3. Corporate Governance Implementation Status and Deviations from “Corporate Governance Best-Practice Principles for TWSE/TPEx Listed Companies”

Evaluation Item			Implementation Status	Implementation Status	Implementation Status	Implementation Status	Implementation Status	Implementation Status	Implementation Status	Implementation Status	Implementation Status	Deviations from “the Corporate Governance Best-Practice Principles for TWSE/TPEx Listed Companies” and Reasons
	Y	N	Abstract Illustration
1. If the Company established and disclosed Corporate Governance Principles in accordance with Corporate Governance Best-Practice Principles for TWSE/TPEx Listed Companies?	V		The Company has established the Corporate Governance Best-Practice Principles based on “Corporate Governance Best-Practice Principles has been disclosed on the Company’s website.									None
2. Shareholding Structure & Shareholders’ Rights (1) If the Company established internal procedures to handle shareholder suggestions, proposals, complaints and litigation and execute accordingly?	V		In addition to the existing hotline and email channels, the Company has established an internal operating procedure, and has designated appropriate departments, such as Investor Relations, Public Relations, Legal Department, to handle shareholders’ suggestions, doubts, disputes and litigation.									None
(2) If the Company maintained of a list of major shareholders and a list of ultimate owners of these major shareholders?	V		The Finance Dept is responsible for collecting the updated information of major shareholders and the list of ultimate owners of those shares.									None
(3) If risk management mechanism and “firewall” between the Company and its affiliates are in place?	V		Group business management regulations are made to strictly regulate the activities of trading, endorsement and loans between the Company and its affiliates. In addition, the “Criteria of Internal Control Mechanism for a Public Company”, outlined by the Financial Supervisory Commission when drafting the guidelines for the “Supervision and Governance of Subsidiaries”, was followed in order to implement total risk control with espect to subsidiaries.									None
(4) If the Company established internal policies that forbid insiders from trading based on non-disclosed information?	V		To protect shareholders’ rights and fairly treat shareholders, the Company has established the internal rules to forbid insiders trading on undisclosed information. The Company has also stronglyadvocated these rules in order toprevent anyviolations.									None
3.Structure of Board of Directors and its responsibility (1) Does the Board of Directors set and implement a diversification policy?	V		The Company has the “Corporate Governance Principles” in place and diversified policies are established with regard to the composition of members of the Board of Directors. The directors (including independent directors) are nominated. The Board of Directors members are nominated according to law by shareholders and naturally elected during a shareholders’ meeting. Member diversification is considered by the Board members. Factors taken into account include, but are not limited to gender, age, cultures, educational background, race, professional experience, skills, knowledge and terms of service. The Board objectivelychooses candidates to meet thegoal of member diversification. Name Gender Operational Decision Making Operation Management Crisis Management Industry Knowledge International Market Outlook Leadership Decision Making Finance Accounting Hsu,Hsiang Male V V V V V V V Huang,Chin-Ching Male V V V V V V Lin,Wen-Tung Male V V V V V V Yu,Hsien-Neng Male V V V V V V Lu,Chi-Long Male V V V V V V Chiang,Sheng-Chang Male V V V V V V Tsai,Rong-Fong Male V V V V V V Wang,Sung-Chou Male V V V Liu ,Cheng-Yi Male V V V Hsu,Fen-Lan Female V V V Hsu,Jun-Shyan Male V V V									None
			Name	Gender	Operational Decision Making	Operation Management	Crisis Management	Industry Knowledge	International Market Outlook	Leadership Decision Making	Finance Accounting
			Hsu,Hsiang	Male	V	V	V	V	V	V	V
			Huang,Chin-Ching	Male	V	V	V	V	V	V
			Lin,Wen-Tung	Male	V	V	V	V	V	V
			Yu,Hsien-Neng	Male	V	V	V	V	V	V
			Lu,Chi-Long	Male	V	V	V	V	V	V
			Chiang,Sheng-Chang	Male	V	V	V	V	V	V
			Tsai,Rong-Fong	Male	V	V	V	V	V	V
			Wang,Sung-Chou	Male		V		V			V
			Liu ,Cheng-Yi	Male		V		V			V
			Hsu,Fen-Lan	Female		V		V			V
			Hsu,Jun-Shyan	Male		V		V			V

(2) If the Company established any other functional committee in addition to Compensation Committee, Audit Committee as required by law?		V	In order for the sound supervision and reinforcement of management, the Company established the Remuneration Committee. The functional committees shall be responsibilities for the Board of Directors.	The company has not yet established other functional committee. Scheduled to gradually establish according to the laws and regulations as well as the practical requirement of the company.
(3) If the Company established methods and procedures to assess the performance of the Board and conduct assessment on annual basis?		V	The Company has the Guidelines for Evaluating Performance of the Board of Directors in place. Self-assessments are organized once a year and cover participation in corporate operation, quality of decisions made by the Board of Directors, the composition and structure of the Board of Directors, the election and continuing education of Board directors, among others. The questionnaires were sent out in December 2017 to respective directors. The 2017 Board of Directors self-assessment was completed on February 2, 2018 and the results are disclosed on the website of the Company.	None
(4) If the Company assess the independence of CPA periodically?	V		The Board has reviewed the qualification of CPA’s independency on Jan. 20, 2017 and May 4, 2017. The review includes the evaluation,as below items: Assessment assessme nt result (Y/N) Independe nce (Y/N) The designated accountant does not have direct or indirect financial interest relationshipwith the Company. N Y The designated accountant does not have a financing or guarantee relationship with the Companyor anydirector or supervisor of the Company. N Y The designated accountant does not have close business relationship or potential employment relationshipwith the Company. N Y The designated accountant does/did not currently/ in the recent two years serve as a director, supervisor, or manager of the Company or play a role having significant influence on the audit case. N Y The designated accountant does not promote or act as an intermediate for the shares or other securities issued bythe Company. N Y The designated accountant does not serve as the advocate of the Company nor as the representative of the Company to mediate the dispute between the Company and anythirdparty. N Y The designated accountant does not have kinship with any directors, superviors, or managers of the Company or the person having significant influence on the audit service. N Y	None

		The assessment results show that the declaration of independence has not been breached in the relationship between the Companyand the CPAs;independence isqualified.
4. Should the listed company establish a department dedicated to corporate governance on a part-time basis, or assign the responsibility of monitoring corporate governance and related affairs to a person (including but not limited to providing directors and supervisors with the necessary materials for executing their business responsibilities, handling of matters related to the Board of Directors Meeting and the Shareholders' Meeting pursuant to the relevant laws and regulations, handling of company registration and changes in registration status, and preparation of the meeting minutes of the Board of Directors Meetingand the Shareholders' Meetingetc.)?	V	The financial department ofthe Comapny has designated personnel to be in charge of corporate governance affairs, including furnishing information required for business execution by Directors and Supervisors, handling matters related to board meetings and Shareholders’ Meetings, and preparing meeting resolutions of board meetings and shareholders’ meetings, supervised by the Management and reports periodically to the Board.	None
5. If the Company established communication channel with interested parties (Including but not limited to shareholders, employees, customers and suppliers, etc.) and disclosed key corporate social responsibility issues frequently enquired by stakeholders on the designated area of the corporate website?	V	Under the section of Corporate Social Responsibility on the Company's website has a sub-section for “Stakeholders” where it relates primary stakeholders of the Company include investors/shareholders, customers/consumers, suppliers/undertakers, employees, government agencies, and media. By summarizing the information collected through online surveys, issues of concern for the stakeholders of Micro-Star, the extent of attention attracted and the importance are confirmed and are prioritized and included as part of the annual goals of the Company. In addition, on the Company’s website “Contact MSI”, the contact windows of respective responsible departments are provided to facilitate communications with stakeholders, to properly address important issues on corporate social responsibilities that stakeholders are concerned about, and to protect the rights of respective stakeholders. as while fulfilling its corporate social responsibility, the Company also ought to give full consideration to the interests of interested parties and treat customers and consumers in a fair and respectful way. Furthermore, social or environmental issues can be solved through commercial methods, which have no impact on the principles of business operations.	None
6. If the Company engaged professional transfer agent to host annual general shareholders’ meeting?	V	The Company has delegated the share administrations agency of Chinatrust Commercial Bank to handle shareholder meetings and related services.	None
7. Information Disclosure (1) If the Company set up a corporate website to disclose information regarding the Company’s finance,business and corporategovernance?	V	The Company has a section on its website to disclose related information of its finance, operation, and corporate governance. Investors may also obtain information about the Company through the Market Observation Post System http://mops.twse.com.tw.	None
(2) If the Company adopted any other information disclosure channels (e.g., maintaining an English-language website, appointing designated personnel to handle information collection and disclosure, appointing spokespersons, webcastinginvestors conference,etc)?	V	The Company has websites in 20 languages, including Chinese and English, such ashttp://tw.msi.com/(Chinese) and http://www.msi.com/about/investor (English) and dedicated employees to take charge of the Company’s information collection and disclosure. The spokesperson system isestablished and implemented.	None
8. If the Company had other important information to facilitate better understanding of the Company’s corporate governance practices (including but not limited to employee rights, employee wellness, investor relations, supplier relations, rights of stakeholders, directors’ and supervisors’ training records, the implementation of risk management policies and risk evaluation measures, the implementation of customer relations policies, and purchasing insurance for directors and supervisors)? (1) Employee rights	V	1. Employees’ remuneration policy is regulated the distribution ratio in the Company’s Articles of Incorporation and is handled according to the “Remuneration Guidelines”, “the Employee Performance Regulations”, and “the Employee Remuneration Distribution and Stock Option Regulations”. Operation profits are shared with employees according to the fulfillment rate of business target, performance, and contribution. 2. The Company has an Employee Welfare Committee with steady funds coming from the Company holding events and providing benefit programs for employees. 3. Besides having employees covered by Labor Insurance and National Health Insurance as required by law so that they can be assured safety while at work, the Company also offers the group insurance for extra protection to employees and their family.	None
(2) Employee care employee wellness	V	The Company was certified by OHSAS18001 (Occupation Health and Safety Assessment Series Certification) in December 2003 and received the “health promotion symbol for spontaneous healthy workplace certification”. Besides periodical employee health examinations, the Company has a employee clinic, nursing room, various health-related tests, workshops, and training from time to time, there are also diversified society events and employees are provided with related consultation services and help solutions on issues such as career, workplace inter-person relationship,emotions at work,work management, physical and mental stress,communications	None

		between husband and wife, child care and education, gender relations, laws in life, wealth management, and tax reduction so that the health of employees in all aspects, physical,mental,and spiritual,is taken well care of.
(3) Investor relations	V	The Company discloses information from time to time through the Market Observation Post System and the Company’s website, and has the “Investor Relations Contact Window” available for the shareholders to contact by phone or through email in order to maintain the investor relationship.	No Deviation
(4) Supplier Relations	V	1. In order to protect the rights of suppliers, as long as not against regulatory requirements and damage to our shareholders’ rights, financial information required by the suppliers for the Company’s creditline evaluation will be provided. 2. In order to accomplish sustainable management for the Company and for all suppliers, suppliers continue to be asked to promise compliance with regulations concerning health and safety, the environment, labor, and ethics as well as guidelines for the management system and risk control and suppliers will receive educational training and periodic audits, among other related auxiliary measures, to help them keep enforcing and improving the said regulations andguidelines.	None
(5) Stakeholder rights	V	1. The Company discloses on its website information on corporate governance, finance, sustainability, and products and also related information on the Market Observation Post System for the stakeholders’ reference. 2. The Company has a section “Contact MSI” on website. If stakeholders have issues about economy, environment, and society, they can communicate the issues with the Company through the said channel; this helps protect the rights of respective stakeholders.	None
(6) Further education status of directors and supervisors	V	The Company’s directors, supervisors, and high-ranking managers receive continuing education as required by “the Directions for the Implementation of Continuing Education for Directors and Supervisors” of TWSE Listed and TPEx Listed Companies on ayearlybasis. The continuingeducationprograms are listed below.	None
(7) Risk management policy and risk measurement measures	V	The Company’s policy towards risk management is to set various rules and regulations in order to weigh and evaluate possible impacts of the various risk matters on the profits and losses of the Company and to stipulate respective response policies accordingly. For the analysis and evaluation of risk matters, other important risks and response measures, please refer to Page 82	None
(8) Implementation of customer policy	V	Regulations to be followed are established in the Company’s internal control system to ensure fulfillment of customer service and product protection and the responsible unit is available for real-time communication during transaction with customers in order to ensure that customers’ rights areprotected.	None
(9) Purchase of liability insurance for directors and supervisors	V	Directors and Supervisors are covered by the Company’s D&O insurance. (And disclosed in the Market Observation Post Systemhttp://mops.twse.com.tw)	None

Please describe the improvements of the corporate governance evaluation results released by the corporate governance center of the Taiwan Stock Exchange Corporation in the last year, and propose priority matters or measures to strengthen areas yet unimproved.

Reasons for failure to get scores during corporate governance rating:

(1) Have the opinions from independent directors about major proposals introduced during the Board of Directors’ meeting and the management’s response to the independent directors’ opinions: To be disclosed truthfully in the 2016 Annual Shareholders’ Meeting Report. The date and session of the meeting, details of the proposals, opinions from all independent directors, and subsequent by the Company’s management shall be specified under “Other Matters” of Exhibit 2 “Information on the Operation of the Board of Directors” in the Annual Report.
Improvement: The said information was already disclosed in the 2017 Annual Shareholders’ Meeting Report (Page 38~40 ).
(2) Did the Company upload the English Annual Report 7 days prior to the shareholders’ meeting?

Improvement: It is expected that the English Annual Report will be prepared for the 2018 shareholders’ meeting and will be uploaded by the required deadline.

	ContinuingEducation/Trainingof Directors Supervisors and Managements	ContinuingEducation/Trainingof Directors Supervisors and Managements
Year	Course	Host by	Duration	Attendees
2003	Corporate Governance	Fu Jen Catholic University	3 hours	All Directors Supervisors and Managements
2004	Corporate Governance and Risk Management	The Taiwan Corporate Governance Association	3 hours	All Directors Supervisors and Managements
2005	Use financial statements to analyze and improve businessperformance	Securities & Futures Institute	3 hours	Directors Supervisors and Managements
2006	Directors, Supervisors and Senior Managers' Responsibilities for Financial Reporting	Securities & Futures Institute	3 hours	All Directors Supervisors and Managements
2007	Audit Strategy of Corporate Governance and Enterprise Tax Planning	The Taiwan Corporate Governance Association	3 hours	All Directors Supervisors and Managements
2008	Business Transformation and Change Management	The Taiwan Corporate Governance Association	3 hours	All Directors Supervisors and Managements
2009	Brand Management and Innovation	The Taiwan Corporate Governance Association	3 hours	All Directors Supervisors and Managements
2010	Corporate Governance under International Taxation	The Taiwan Corporate Governance Association	3 hours	All Directors Supervisors and Managements
2011	Financial statements and analysis of trends in the industry	The Taiwan Corporate Governance Association	3 hours	All Directors Supervisors and Managements
2012	Disputes and Risks Caused by Taiwan Enterprises' Investment in China	The Taiwan Corporate Governance Association	3 hours	All Directors Supervisors and Managements
2013	Financial thinking of business transformation	The Taiwan Corporate Governance Association	3 hours	All Directors Supervisors and Managements
2014	New Trend of Internal Control Practice - Corporate Social Responsibility and Risk Management	The Taiwan Corporate Governance Association	3 hours	All Directors Supervisors and Managements
2015	Comprehensively improve adaptability - Enterprise crisis management	The Taiwan Corporate Governance Association	6 hours	All Directors Hsu,Fen-Lan Hsu,Gau-Shan and Managements
2015	In 2015, the latest tax update issued the latest information analysis	Taiwan CPA Association, ROC	6 hours	Hsu,Jun-Shyan (National Association of Certified Public Accountants lecturer)
2016	The reform and sustainable management of the board of directors; the key strategies and practices of breakthroughs in business innovation	The Taiwan Corporate Governance Association	6 hours	All Directors Supervisors and Managements
2017	Big Data Analysis and Corporate Fraud Detection	The Taiwan Corporate Governance Association	3 hours	All Directors(exceptTsai,Rong-Fong) Supervisors and Managements
2017	Reconstruction of IT Security Strategy from Cyber Crime View	The Taiwan Corporate Governance Association	3 hours	All Directors(exceptTsai,Rong-Fong) Supervisors and Managements
2017	Corporate Governance Forum series-sustainable operation	Taiwan academyof Bankingand Finance	3 hours	Tsai,Rong-Fong
2017	2017 Insider Trading and Corporate Social Responsibility Forum	Securities & Futures Institute	3 hours	Tsai,Rong-Fong

4.Professional Qualifications and Independence Analysis of Remuneration Committee Members

(1)Remuneration Committee

uneration Committee
Title	Criteria Name	Meets one of the following professional qualification requirements, together with at least five years’ work experience			Independence Criteria Note								Number of other public companies in which the individual is concurrently serving as an Compensation Committee member	Remarks
		An instructor of higher position in a department of commerce, law, finance, accounting, or other academic department related to the business needs of the company in a public or private junior college, college or university	A judge, public prosecutor, attorney, CPA, or other professional or technical specialist who has passed a national examination and been awarded a certificate in a profession necessary for the business of the company	Have work experience in the areas of commerce, law, finance, accounting, or otherwise necessary for the business of the company	1	2	3	4	5	6	7	8
Independent Director	Wang,Sung-Chou		�	�	�	�	�	�	�	�	�	�	0
Independent Director	Liu,Cheng-Yi			�	�	�	�	�	�	�	�	�	1
Other	Chen,Chung-Jung			�	�	�	�	�	�	�	�	�	0

Note During the 2 years before being appointed or during the term of office, a remuneration committee member shall have been or be any of the following:

1.Not an employee of the Company or any of its affiliates.
2.Not a director or supervisor of affiliated companies. Not applicable in cases where the person is an independent director of the parent company, or any subsidiary in which the Company holds, directly or indirectly, more than 50% of the voting shares.
3.Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of 1% or more of the total number of outstanding shares of the Company, or ranking in the top 10 in holdings.
4.Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship, of any of the persons in the preceding three sub-paragraphs.
5.Not a director, supervisor, or employee of a corporate shareholder who directly holds 5% or more of the total number of outstanding shares of the Company, or who holds shares ranking in the top five holdings.
6.Not a director, supervisor, officer, or shareholder holding 5% or more of the shares of a specified company or institution which has a financial or business relationship with the Company.
7.Not a professional individual, who is an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that provides commercial, legal, financial, accounting services or consultation to the Company or to any affiliate of the Company, or a spouse thereof.
8.Not a person of any conditions defined in Article 30 of the Company Law.

A. Attendance of Members at Remuneration Committee Meetings

There are 3 members in the Remuneration Committee.

Tenure of the second session of Remuneration committee is from 12th June, 2015 to 11th June, 2018. A total of 4 (A) meetings of the Remuneration Committee were held in 2017, The attendance record of the Remuneration Committee members was as follows:

Title	Name	Attendance in Person (B)	By Proxy	Attendance Rate (%) B/A	Remarks
Convener	Wang,Sung-Chou	4	0	100%	Independent Director
Member	Liu,Cheng-Yi	4	0	100%	Independent Director
Member	Chen,Chung-Jung	4	0	100%
Other mentionable items: 1. If the board of directors declines to adopt or modifies a recommendation of the remuneration committee, it should specify the date of the meeting, session, content of the motion, resolution by the board of directors, and the Company’s response to the remuneration committee’s opinion (eg., the remuneration passed by the Board of Directors exceeds the recommendation of the remuneration committee, the circumstances and cause for the difference shall be specified): None. 2. Resolutions of the remuneration committee objected to by members or subject to a qualified opinion and recorded or declared in writing, the date of the meeting,session,content of the motion,all members’ opinions and the response to members’ opinion should be specified: None.

(2)Scope of duties

A. Establishing and periodically reviewing the annual and long-term performance goals for the directors, supervisors, and managerial officers of this Corporation and the policies, systems, standards, and structure for their compensation.

B. Periodically assessing the degree to which performance goals for the directors, supervisors, and managerial officers of this Corporation have been achieved, and setting the types and amounts of their individual compensation.

5.Implementation of Corporate Social Responsibility

5.Implementation of Corporate Social Responsibility
Item			Implementation Status	Different from “the CSR best practice principles” issued by TWSE and its reason(s)
	Y	N	Summary
1. Exercising Corporate Governance (1)If the Company established corporate social responsibility (“CSR”) policy or system and reviewed its implementation and effectiveness?	V		The Company has established its Corporate Social Responsibilities to be followed and discloses them on the Company’s website and the Market Observation Post System according to the Corporate Social Responsibility Best Practice Principles for TWSE/GTSM Listed Companies. The substantial implementation and enforcement efficacy discussions are described in the following.	None
(2)If the Company conducted CSR related trainings?	V		Besides educational training on social responsibilities for new hires, the Company also holds educational training and meetings to communicate to existing employees from time to time. For suppliers,the Companyholds supplier conferences and field auditsperiodically.	None
(3)If the Company set up a unit exclusively or concurrently to execute CSR policies and if the Board appointed member(s) of management team to supervise and report its implementation status to the Board?	V		With regard to the framework of corporate social responsibilities promoted by the Company, the Board of Directors authorizes the general manager to command respective full-time (part-time) units to establish and discuss corporate social responsibilities-related policies and the enforcement of systems. Meanwhile, the sustainable development office is available to take charge of organizing related matters on corporate social responsibilities and to periodically report to the Board of Directors. For the operation and implementation status, refer to the Company’s Corporate Social ResponsibilityReport for details http://tw.msi.com.	None
(4)If the Company adopted appropriate remuneration policies, integrated employee performance appraisal with CSR policies, and established a clear and effective incentive and discipline system	V		The Company has remuneration policies in place. Reasonable salaries and remunerations are given to employees according to their responsibilities and contribution at work as determined by the performance evaluation. Various remuneration regulations are approved by the Remuneration Committee. Meanwhile, the “Work Rules” of the Company clearly specify employee behavior and discipline, award/punishment are given according to employee performance.	None
2.Fostering a Sustainable Environment (1)If the Company endeavored to utilize resources more efficiently and utilized renewable materials which have a lower impact on the environment?	V		Based on the requirements of international regulations, customer requests and eco-labels, we identify related environmental aspects and impacts according to the standard process to discover significant influences as priorities for improvement. With technology and cost feasibility, we establish rigorous requirements for design management and implement them on product life cycle by considering resource conservation, recycling and reuse, energy saving, pollution prevention and other environmental impacts. 1.The packaging printed with eco-friendly soy ink can decrease the use of hazardous substances and reduce the disposal and reprocessing work. 2.Paper packaging materials made by more than 90% recycled paper materials. 3.For waste disposal and reuse, create designs for easier disassembly, reduce material kinds and simplify materials such as not to use composite materials for material labels. 4.Usingof environmentallyfriendlymaterials with international environmental regulations.	None
(2)If the Company established proper environment management system based on the characteristics of the industry where the Company belongs to?	V		We establish related environmental management methods according to the operating and production characteristics. MSI have passed the certifications of ISO 14001 IECQ/QC 080000 ISO14064-1 & 2 ISO 14006 and ISO 14072.	None

(3)If the Company monitored the impact of climate change on the Company’s business operations, checked greenhouse gas inventory and established corporate strategies on energy conservation and reduction on carbon and greenhouse gas emission?	V	MSI has formulated measures to implement energy conservation and carbon reduction policies and related measures. The GHG emissions data have been verified by third party and are disclosed at Market Observation Post System (MOPS). (http://emops.twse.com.tw/server-java/t58query). Other climate change risks please see the MSI official website note. https://tw.msi.com/html/popup/csr_tw/evmtprtt_climate.html	None
3.Preserving Public Welfare (1)If the Company followed relevant labor laws, and internationally recognized human rights principal, and established appropriate management policies and procedures?	V	MSI is a melting pot of talents from different ethnic groups all from over the world. Therefore, we treat employees in the same way without distinction of any kind, such as race, color, sex, age, religion, political or other opinions, national or social origins, or other status. We ensure to respect labor rights and the implementation of equal treatment.	None
(2)If the Company established grievance channel for employees and handled complaints appropriately?	V	The Company has the employee assistance plan (EAP) and audit office mailbox available for employees to file a complaint anonymouslyor non-anonymously.	None
(3)If the Company provided safe and healthy working environment to employees and conducted relevant training on safety and health management to employees periodically?	V	The Company holds educational training for employees and contractors periodically and has the labor safety and health management unit, the Environmental Safety and Health Management Committee, the Food Board, and the Medical Office in place for a safe operating environment and to ensurephysical and mental health of employees.	None
(4)If the Company established a periodical communication mechanism to employees and notified employees of significant changes that may impact the Company’s operation in a proper manner?	V	In order to maintain sound communication channels with its employees, the Company also encourages employees to make suggestions. There are the internal portal website and the email where the Company completely discloses employee information, management guidelines, and operational announcements so that employees know in real time major changes in operations.	None
(5)If the Company provided career planning, relevant training and skill development for employees?	V	The Company highly values training and career developments for its employees. In order to continue promoting quality talent cultivation and key skills management, there are the Regulations Governing Educational Training that address continuing education and training for employees. Meanwhile, budget is appropriated on a yearly basis to facilitate organization of various types of educational training. Lecturers are hired periodically or from time to time to hold workshops. Reflective of the different rankings and levels of professionalism, internal or external educational training is provided to help employees form complete professional skills and inspire them to seek self-growth.	None
(6) If the Company established any consumer protection measures with regard to the process of research and development, procurement, production, operations and services and its grievance channels?	V	Besides purchasing appropriate product liability insurance in order to protect the rights of customers and consumers, global service systems are created in countries and regions such as Taiwan, Europe, America, Japan, Korea, and China, including self-operated or outsourced maintenance sites and customer service centers and websites that have multiple language options. Downloading and updates online, after-sales service, product maintenance and repairs,technical support,and complaintprocedures are available for consumers as well.	None
(7)If the Company followed relevant laws and regulations and international guidelines on marketing and labeling of products and services?	V	Products by Micro-Star are marketed and labeled in compliance with applicable laws and regulations and industrial standards and there are dedicated departments to make sure that requirements are fulfilled according to internal operating and regulatory documents. Product verification, quality control, and third-party testing help ensure that products are marketed and labeled in compliance of applicable standards.	None
(8)Prior to engaging commercial dealings, if the Company assessed whether the supplier had track record o negative impact on the environment and society?	V	The Company has established the Supplier Management Guidelines. New suppliers go through evaluation that covers human rights, the environmental and social responsibilities. For existing suppliers, there are also supplier evaluations from time to time in order to ensure that suppliers comply with corporate social responsibilities. It also reduces losses in bilateral transactions orgood will because of the environmental or social responsibilities.	None

(9)If the contracts with major suppliers stipulated a clause that allowed the Company to terminate or rescind the contract at any time shall the suppliers violate CSR policies and cause significant impact to the environment and society?	V		The Company specifies in the supplier procurement contract that if suppliers violate its corporate social responsibility policy and the violation has a significant influence on the environment and the society, Micro-Star may terminate or dismiss the terms and conditions in the contract at any time. The Company also enforces the policy that requires all suppliers to sign its customprocurement contract.	None
4.Enhancing Information Disclosure If the Company disclosed CSR report and other relevant information on its corporate website and MOPS?	V		Through the Chinese and English web pages of the corporate social responsibility section on the Company’s website:http://tw.msi.com/, the Company updates related information on its corporate social responsibilities in real time and discloses it in the Market Observation Post System.	None

5. If the Company established any guideline of corporate social responsibility in accordance with “Corporate Social Responsibility Best-Practice Principles for TWSE/GTSM-Listed Companies” and please state the
implementation status of the guideline and any reasons for non-implementation: None.
Pursuant to the "Listed Company Corporate Governance Best Practice Principles" and passed by the Board of Directors, the Company has established the "MSI Corporate Governance Best Practice Principles", of which the
Board of Directors.
6.Other material information that helps to understand the operation of corporate social responsibility:
MSI continues to engage the community and participate in education, charity auction and environmental protection activities through sponsorship and employee volunteers. In Taiwan, we not only get involved in public
services through investment of our internal resources, but also joined in the activities of charity groups. Through the process of service to and in the communities, we expand our love and care into the world and unify our
employees' values and commitment towards MSI's corporate social responsibilities. MSI will continue to make its presence in services for the rural areas and disadvantaged groups.
(1)Education Care
A.Support for Education
①School Lunch Fund
Chin Hsian Junior High School and Lian Dong Elementary School, located in the remote mountains of New Taipei City's Ruifang District, are facing serious
population outflow. An extremely high percentage of the children come from single-parent families or are cared for by foreign parents or grandparents, and
most of the families are considered low-income. To provide the children balanced meals, MSI sponsored the lunch and dinner programs for these two
schools. The aim is to improve the underweight and undernourished situations in the community and bring the disadvantaged families to feel the power of
love from the society.
②Sponsored the school kitchens in the rural areas of New Taipei City to purchase locally produced vegetables or rice
To improve the quality of school lunch at schools with independent kitchens, MSI sponsored several schools in the rural areas of New Taipei City to
purchase vegetables and rice from local farmers. This program effectively improved the safety of food served to schoolchildren and provided opportunities
for expanded farming to boost economic development in the local communities. It is a win-win campaign that takes care of the farmers and promotes local
produces and fortifies the supplyof fresh rice and vegetables to the schools. Thepower of love is spreading from the city into the rural communities.
Year
The benefited schools(Total)
The benefited students(Total)
2017
31
5,474
B.Tutor Service for Disadvantaged Students
①Education Assistance Program
For a long time, MSI has been paying attention to the education of children from disadvantaged families. Therefore, we continue to provide tutor services
to schools in the North Coast Area. This program aims to help the students develop the foundation skills for learning, help the children from disadvantaged
families build self-confidence,developtheirpotential and create a caringand lovingcommunitywith the value of mutual help.
Year
The benefited schools
The benefited class
The benefited students
2017
49
108
2,312
②MSI English Enhancement Program for Students from Disadvantaged Families
MSI teamed up with Hsinchu County Government to launch the MSI English Enhancement Program. This program was designed to boost students'
willingness to learn English through reading English stories and illustrated story books. The goals are to develop the children's abilities in reading and build
the foundation skills for learning of English. This program is expected to close the rural-urban gap in distribution of learning resources and English learning
brought about bysocio-economic disadvantages.
Year
The benefited schools
The benefited class
2017
23
2,873
C.Technological Creation
MSI PowerTech Creative Technology Program for Youth
Arising from the global maker fever and the education ideology of STEAM – science, technology, engineering, art and math – MSI advocates hands-on and
creative science learning. MSI sponsored the fund for a one-year program. The sponsorship extends to summer PowerTech Camps for elementary and junior
high schools in New Taipei City and PowerTech clubs, as well as competitions and training courses. This program aims to boost students' interest in exploring
science, develop the potential for technology and cultivate new-generation technology talents. This industrial-academic collaboration consolidates corporate
and education resources to advocate the idea of creative and innovative science and technology. This program is targeted at enhancing the maker skills of
participatingstudents and teachers,as well as learningofgeneral science.

Year	Donations(NTD)
2017	1,250,000
D.New Taipei City Family Day for Children in Special Education
The New Taipei City Government Bureau of Education has a wealth of life		experience for special education programs students. For each second half of the year, students will have a special school day for family
education. They can arrange activities through the Bureau of Education and traffic pick up service to ease the burden of many parents. It will make it easier for children to experience different life experiences. The
children are more willingtogo outdoors to feel comfortable learningand		happy growth.
Year	Sponsors		Location
2017 Micro -Star INT'L CO.,LTD. Taiwan Taxi CompanyLOHAS Club			Green World Ecological Farm(Hsinchu City)
(2)Community Care
Flight with Dreams Fund for Students from Disadvantaged Families

MSI has been a long-term member of the Committee of New Taipei City Flight with Dreams Fund. This committee, formed by a panel of representatives from the industrial, public and academic sectors, selects students with high performance from disadvantaged families and sponsors the students with scholarships so that they can focus on learning, complete their education and have enjoyable years on campus without having to worry about tuition fees and living expenses. This scholarship aims to improve the lives of students with good academic performances from rural areas of New Taipei City. (3)Corporate Volunteers

We encourage our employees to participate in social services while they are working in MSI. Activities such as education environmental education and caring for society through activities of MSI's internal societies. That will be enables MSI employees to create a centripetal force on the organization to shape the organizational culture to promote social integration community cohesion and community change.

That will be enables MSI employees to c	reate a centripetal for	ce on the organization to shape the organizational culture to promote social integration community co
Diversified Services	Clubs	Service Content
The 25th Northern Taiwan Special Cheerleading Tournament for Children with Intellectual Disabilities	Volunteer Club	The annual Cheerleading Tournament for People with Intellectual Disabilities held in May every year is organized by the Association for Services to People with Disabilities.MSI Volunteer Club also participated in this event as guides and administration helpers to guide the participating teams throughout the event. The cheerleading tournament combines two elements of empowerment, music and dance, which drives children with intellectual disabilities to learn. Through this event, the children build up their self-confidence and the parents gain emotional support from the children's demonstration of their abilities to learn. Such empowerment will support them on the continuous journey to create a better world for their children. The spirit of “never give up” manifested in their vibrant energy drives them to break through their limitations again and again. They touched the hearts of MSI volunteers, who felt that theyhave been deeplyinspired at this event.
Uniform Receipt for Bowling Vouchers Drive	Bowling Club	The MSI Bowling Club organizes donation of invoices for ball games, allowing busy work and life to achieve a balance of life through sports enhance interaction with colleagues and feelings.
World Vision's 30-Hour Famine Event	Dance Club	For busy office workers, the 30-hour famine camp may be a good way to show their care for the world. There are people in every corner of the world waiting to be rescued from famine. You will not understand the urgency unless you experience it yourself. MSI's Dance Club organized the 12-hour Famine Experience Camp (from 6 a.m. to 6 p.m.) to let our colleagues experience hunger for 12 hours. This is a first-hand experience of the despair hovering over the lives of people in long-term famine. This event aims to awaken the spirit of treasuringwhat we have.
Walking for Health by Formosa Cancer Foundation	Jogging Club	The Formosa Cancer Foundation launched the NB Pink Walking Carnival. The event aimed to raise awareness of breast cancer screening. MSI's Jogging Club invited colleagues and their families to join this event. The proceeds from the event, a total of NT$49,350, were donated to the Formosa Cancer Foundation and will be used for research and advocacyof breast cancerprevention.
Design Badge Charity Auction	Photography Club	MSI's Photography Club invited our colleagues to join this public welfare event. At a small cost, every participant enjoyed the fun of making a magnetic badge DIY style. The badges were sold for a total of NT$8,000 and allproceeds were donated to the Mennonite Foundation.

(4)Medical Assistance

Blood Donation: Since 2002, MSI infirmary in Taipei has invited the local blood center of Taiwan Blood Services Foundation to organize the Fraternity Grows. Besides, MSI Shenzhen periodically holds blood donation activities as well. Many employees roll up sleeves and donate their blood to help patients who are in need to express their fraternity.

Year	The number of Employees	Bags(250ml)
2017	403	663

(5) Community sponsership: The Company took part in the traditional cultural festival for 2 days that was organized by the Zhonghe District Office of New Taipei City.

(6)Donation of Computers

MSI has been actively involved in public services through sponsorships and donation of equipment to disadvantaged groups and social welfare organizations. We also seek to resolve social issues (poverty, unemployment, health, medical care, etc.) through commercial models to bring about a larger scale of investment for expanded effects and to build sustainable systems.

Recipient Organization	Computer Type	Expected Goals and Performance
Cathwel Service	PC	Duringthe reporting period,it canprovide digital learningand internal administrative work for about 60 children.
Taiwan Community Home Care Association	PC	During the reporting period, the association can be provided for the management of material systems assisting the employment of disadvantagedparents and improvinginformation utilization capabilities.
Jimei Elementary School Community Charity Activities	PC	During the reporting period, through the digital information courses can be used to enhance self-learning and growth opportunities for disadvantaged students women and elderly people in surrounding communities in Jimei Elementary School.
Taipei County Volunteer Association	AIO	During the reporting period, the association can be provided to improve the overall learning ability and competitiveness of the disadvantaged so as to increase self-growth and self-learningopportunities.
Social Welfare Depertment, New Taipei City Government Children's Computer Resources Project	AIO	The MSI provided AIO computers free of charge with Social Welfare Department, New Taipei City Government. We together provide a friendly learning environment for the children of disadvantaged families. Through the assistance of social resources, we will enrich the computer learning facilities for children with fewer disadvantaged families and enhance children's learning motivation cultivate diversified and active learningattitudes.

(7) Environmental protection events

A. Planting trees in Jinshan: The Company took part in the Arbor Day coastal forestation at Zhongjiaoshazhu Bay of Jinshan District, New Taipei City. The saplings have been cared by the Tse-Xin Organic Agriculture Developmental Fund thereafter so that they could continue to grow strong and exercise the functions of preventing against wind, fixating sand, protecting the coast, reducing flying sand, preventing against invasion by strong wind, and improving the micro-climate.
B. Safeguarding wetland ecology: The Company sponsored the wetland rehabilitation plan in Wugu of the Society of Wilderness so that the latter can conduct a wetland ecology census, create a waterfowl beach, have volunteers to take part, and promote environmental education, among others.
C. Adopting and growing organic rice: The Company adopted 4850 square meters of natural agricultural field in Nanao and harvested the rice before donating it to the Food Bank of the Social Welfare Department, New Taipei City Government to be the food for minority groups.
D. Adopting roadside trees: The Company adopted the trees alongside Qiaohe Road in Zhonghe District, New Taipei City so makes the road more beautiful and safer, benefiting the society.

7.Please provide further description for company product or corporate social responsibility report which is certified by relevant organization:

The MSI 2018 CSR Report is in compliance with the core options in the GRI Standard (2016 version), and has attained assurance from third party (BSI Taiwan) as part of Moderate Assurance Level in AA1000AS-2008 Type

6.Implementation of Ethical Practice

6.Implementation of Ethical Practice
Indicator			Operation	Variation from Corporate Governance Best Practice Principles and Reason
	Yes	No	Summary
1.Codify Ethical Management Policies and Plans (1)Does the Company demonstrate its ethical management policies in its regulations and documents communicating with external parties, and do the Board and management actively fulfill their commitments through business policy	V		The Company’s Board of Directors and management are proactively fulfilling its commitment demonstrated in its operation policy. The “EICC Electronics Industry Code of Conduct” was introduced in 2008. Both the Company and suppliers must follow high-standard ethical requirements, including ethical management and absence of illegitimate income, among others.	None
(2)Does the Company have safeguards against unethical behavior in place including clear procedures, code of conduct, penalties for violations and a grievance mechanism? Are these enforced	V		In order to prevent against dishonest behavior that occurs during operations, the Company’s Board of “Directors Rules of Procedure” require that directors recuse themselves in proposals concerning their own interest and there are the “Corporate Governance Principles”, “Ethical Management Principles”, “Code of Moral Conduct”, and “Work Rules” in place to govern the moral behavior of directors, supervisors, managers, and employees, punishment upon violation,and appeal systems,respectivelyand theyarepreciselyenforced.	None
(3)Does the Company have safeguards against business activities identified as being at higher risk of unethical behavior in “Article 7 Paragraph 2 or other sections” of the “Ethical Corporate Management Best Practice Principles for TWSE/GTSM-Listed Companies”	V		According to regulatory requirements, the Company does not allow bribery or acceptance of bribery, political contributions or improper charity donations, offering or acceptance of unreasonable gifts, hospitality or other illegitimate interest and has reinforced its internal control system in order toprotect againstpossible dishonest behavioral risks.	None
2.Implementing ethical management (1)Does the Company evaluate the ethical record of its transaction parties and explicitly include clauses on ethical behavior in contracts	V		The Company has articles about honest behavior in its business contract and avoids doing business with people with records of dishonest behavior.	None
(2)Does the Company have a dedicated corporate ethics unit that is overseen and regularly reports to the Board of Directors	V		In order to prevent against conflicts of interest and to offer channels for proper statements, independent directors form the part-time unit in charge of ethical management at the Company in order to promote and consolidate honest operations and the unit reports to the Board of Directorsperiodically.	None
(3)Does the Company have a conflict-of-interest prevention policy with suitable channels for reportingsuch conflicts, and enforces such apolicy	V		In case of any illegal condition in violation of honest operation, complaints may be filed with or the condition maybe reported to the Company’s supervisors or the Internal Audit Office.	None
(4)Does the Company have an effective accounting system and internal control system for ensuring ethical management that is regularly audited by an internal audit unit or public auditor	V		The Internal Audit Office audits the Company’s accounting system, internal control system, and fulfillment of honest operations on a yearly basis according to the Regulations Governing Establishment of Internal Control Systems by Public Companies and the Ethical Management Principles.	None
(5)Does the Company regularly host internal and external training on ethical management?	V		The Company communicates the belief in ethical management on its website and holds internal and external educational trainingsessions for its employeesperiodically.	None
3.Operation of the corporate whistleblower system (1)Does the Company have an explicit whistleblower and incentive scheme in place that protects whistleblowers and assigns appropriate personnel for investigating the target of the whistleblower complaint	V		In the event that stakeholders discover that the Company’s directors and supervisors, managers, and employees are engaged in illegal behavior in violation of ethical management (including corruption and immoral behavior), they may file a complaint with or report to the Company’s supervisors or Internal Audit Office. If it is found to be true, punishment will be imposed accordingto the internal rules and applicable laws and regulations.	None
(2)Does the Company have a standard operating procedure for investigating whistleblower complaints and the related mechanism for ensuringconfidentiality	V		The Company’s Procedures of Whistleblower stipulate the standard investigation procedure and related confidentialitymechanism through which matters reported areprocessed.	None

(3)Does the Company have measures to protect whistleblowers against retaliation	V	The reporter and the receiving head shall assist the audit unit in conducting an investigation. No unilateral investigation, comments, transcribing the case and the reporter is allowed. No inquiry about or release of the true identity of the reporter or disciplining the reporter and the reportedpartyis allowed,either.	None
4.Greater disclosure (1)Does the Company disclose is ethical management principles and progress on its promotion through its website or the Market Observation Post System website	V	Besides in the Market Observation Post System, the contents of the Company’s Ethical Management Principles and the promotion efficacy are disclosed on the Company's website http://tw.msi.com/.	None
5.If the Company has drafted an ethical management principle according to “Ethical Corporate Management Best Practice Principles for TWSE/GTSM-Listed Companies,” the operation of the principle and the deviation from the principle should be clearly stated: The Companyhas established “Code of Ethical” based on TWSE/GTSM’s “Ethical Corporate Management Principles”.
6.Other material information that helps to understand the operation of the Company’s ethical management (such as the Company’s declaration of its resolve and policies to its business partners; the Company’s invitation of trainingto itspartners; and the Company’s revision of its ethical managementprinciples) None

How to search for the Corporate Governance Principles and applicable rules:
In order to create a corporate culture of ethical management and normalize its development, the Company has established the Ethical Management Principles, Code of Moral Conduct, and also the Board of Directors Rules of Procedure, Scope of Responsibilities of Independent Directors, and Corporate Governance Principles in compliance with the Corporate Governance Best Practice Principles for TWSE/TPEx Listed Companies (all are disclosed on the Market Observation Post System website http://mops.twse.com.tw) in order to promote the operating efficiency, decision-making ability of the Board of Directors and the moral standards.

8. Other Information:

(1)Continuing education for directors and supervisors: The Company holds seminars on topics relating corporate governance from time to time for directors and supervisors to attend. The status of continuing education is disclosed on the Market Observation Post System website as required.
For detailed continuing education received by directors, supervisors, and high-ranking managers of the Company over the past few years, refer to Page 25 .
(2) Coverage of directors and supervisors by liability insurance: The Company revised its Articles of Incorporation on June 9, 2004 that the Board of Directors may be authorized to decide to purchase liability insurance for all directors and supervisors to cover liability risk within the scope of their operation when duty. The Company purchases liability insurance for directors and supervisors every year and disclose the information on the Market Observation Post System website.
(3) Presence of absence of an operating procedure for handling significant information: The Company has an operating procedure for handling information in place as part of its internal control system and periodically audits it.

Internal Control System
(1)Statement of Internal Control System

Micro Star International Co., Ltd. Statement of Internal Control System

March. 23, 2018

Based on the findings of self-assessment, the company states the following with regard to its internal control system in 2017:
The company is fully aware that establishing, operating and maintaining an internal control system are the responsibilities of its Board of Directors and management. The aim of the internal control system is to provide reasonable assurance to effectiveness and efficiency of operations (including profitability, performance and safeguarding of assets), reliability, timeliness, transparency, and regulatory compliance of reporting and compliance with applicable laws, regulations, and bylaws.
An internal control system has inherent limitations. No matter how perfectly designed, an effective internal control system can only provide reasonable assurance of accomplishing the aforementioned three objectives. Moreover, the effectiveness of an internal control system may be subject to changes of environmental or circumstances. Nevertheless, the internal control system of the company contains self-monitoring mechanism and the company takes corrective actions whenever a deficiency is identified.
The company evaluates the design and operating effectiveness of its internal control system based on the criteria provided in the Regulations Governing Establishment of Internal Control Systems by Public Companies (herein below, the “Regulations”). The criteria adopted by the Regulations identify five components of internal control based on the process of management control: (A) control environment, (2) risk assessment, (3) control activities, (4) information and communication, and (5) monitoring activities. Each component further contains several items. Please refer to the Regulations for details.
The company has evaluated the design and operating effectiveness of its internal control system according to the aforesaid criteria.
Based on the findings of the assessment mentioned in the preceding paragraph, the company believes that, as of December 31, 2017, its internal control system (including its supervision and management of subsidiaries), as well as its internal controls to monitor the achievement of its objectives concerning effectiveness and efficiency of operations, reliability, timeliness, transparency, and regulatory compliance of reporting, and compliance with applicable laws, regulations, and bylaws, were effective in design and operation, and reasonably assured the achievement of the above-stated objectives.
This Statement will be integral part of the company’s Annual Report and Prospectus, and will be made public. Any falsehood, concealment, or other illegality in the content made public will entail legal liability under Articles 20, 32, 171 and 174 of the Securities and Exchange Act.
This Statement has been passed by the Board of Directors in their meeting held on March. 23, 2018 with zero of nine attending directors expressing dissenting opinions, and the remainder all affirming the content of this Statement.

Micro Star International Co., Ltd. Chairman & President 5 HSU,HSIANG

The penalties delivered to the Company and the staffs of the Company, or the penalties delivered by the Company to the staffs for violations of internal control system, the major nonconformity, and the corrective action in the most recent year and up to the date of the annual report: None.
The Major Resolutions of Shareholders’ Meeting and Board Meetings in the most recent year and up to the date of the annual report:

(1)Major Resolutions of Shareholders’ Meeting

Meeting date	Abstract of important proposals	Abstract of important proposals	Execution situation	Execution situation	Execution situation	Execution situation
2017.06.15	1. Report Item 6 (1)Business report of 2016. (2)Supervisors' review report of 2016. (3)Report of Employees’ Compensation and Directors and Supervisors’ Compensation for 2016. 2. Adoption Items 6 (1)To adopt 2016 Business Report and Financial Statements. (2)To adopt the proposal for distribution of 2016 profits. 3. Discussion Items 6 (1)To approve the Proposal of Cash Distribution from the Capital Surplus. (2)To discuss amendment to the Operational Procedures for Acquisition and Disposal of Assets.		1. The 2017 shareholders’ meeting minutes were disclosed on the Market Observation Post System website on July 3, 2017. 2. Remunerations for employees, directors, and supervisors were issued on July 28, 2017. 3. Distribution of 2016 earnings: Shareholders’ bonus - dividend in the value of $3.5 per share and dividend in the value of $1 per share from reserve ($4.5 in total); August 22, 2017 was set to be the record date and the dividends were issued on September 15, 2017. 4. Revising the Regulations Governing the Acquisition and Disposal of Assets and the information was disclosed on the Market Observation Post System website on June 15, 2017.
(2)Major Resolutions of Board Meetings
Board of Directors Meeting		Contents proposed		Opinion of independent director		The company’s handling of independent director’s opinion
				Independent Director
				Wang,Sung-Chou	Liu,Cheng-Yi
2017.01.20		1.Report Item: (1)Derivative product undertaking. 2.Adoption and Discussion Items 7 (1)Salary Compensation Committee Recommendation (2)Evaluated the report concerning the independence of this Company’s CPA. (3)Capital decrease of the subsidiaries. (4)Approved the Business Plan of 2017 for this Company.		None	None	None
2017.03.24		1.Report Items: (1)Audit reports (2)Derivative product undertaking. (3)Liability insurance for Directors and Supervisors of this Company. 2.Adoption and Discussion Items 7 (1)Approved the 2016 Financial Statement of this Company. (2)Approved The Statement on Internal Control System of 2016 of this Company. (3)Amendments to the Procedure for Handling Acquisition and Disposal of Assets. (4)Salary Compensation Committee Recommendation (5)Matters related to the convening of the 2017 shareholders’ meeting. (6)Approved the scheduling for the annual shareholders’ meeting items raised by the shareholders to be reviewed. (7)Bank credit line approval.		None	None	None

Board of Directors Meeting	Contents proposed	Opinion of independent director	Opinion of independent director	The company’s handling of independent director’s opinion
		Independent Director
		Wang,Sung-Chou	Liu ,Cheng-Yi
2017. 05.04	1.Report Items: (1)Business Performance Report - First Quarter 2017 (2)Audit reports (3)Derivative product undertaking. (4)Matters related to the shareholders’ general meeting acceptance of shareholder proposals Report. 2.Adoption and Discussion Items 7 (1)Prepare the 2016 surplus distribution proposal of this Company. (2)Approval of the Company’s cash distribution with capital reserve (3)Evaluated the report concerning the independence of this Company’s CPA.	None	None	None
2017.07.24	1.Report Items: (1)Derivative product undertaking. (2)Liability insurance for Directors and Supervisors of this Company. 2.Adoption and Discussion Items 7 (1)Approved the proposition to determine the base date for the distribution of cash dividend and capital reserve in cash to shareholders. (2)SalaryCompensation Committee Recommendation	None	None	None
2017.08.09	1.Report Items: (1)Report Items: Financial Report of second quarter, 2017 (2)Audit reports	None	None	None
2017.10.06	1.Report Items: (1)Derivative product undertaking. 2.Adoption and Discussion Items 7 (1)SalaryCompensation Committee Recommendation	None	None	None
2017.11.09	1.Report Items: (1)Financial Report of third quarter, 2017. (2)Audit reports (3)Derivative product undertaking. (4)Implemented the audit report for ethical corporate management. (5)Implemented the audit report for Corporate Social Responsibility. 2.Adoption and Discussion Items 7 (1)Investment in Mainland China companies through an existing company established in a third region. (2)New bank financing limit application (3)Approved the 2018 auditplan.	None	None	None
2018.02.02	1.Report Item: (1)Derivative product undertaking. 2.Adoption and Discussion Items 7 (1)Salary Compensation Committee Recommendation (2)Self-Evaluation or peer Evaluation of the Board of this Company. (3)Approved the Business Plan of 2018 for this Company.	None	None	None

Board of Directors Meeting	Contents proposed	Opinion of independent director	Opinion of independent director	The company’s handling of independent director’s opinion
		Independent	Director
		Wang,Sung-Chou	Liu ,Cheng-Yi
2018.03.23	1.Report Items7 (1)Audit reports (2)Derivative product undertaking. 2.Adoption and Discussion Items 7 (1)Approved the 2017 Financial Statement of this Company. (2)Approved The Statement on Internal Control System of 2017 of this Company. (3)Salary Compensation Committee Recommendation (4)Bank credit line approval. (5)Approved the stipulation of Audit Committee Charter. of this Company. (6)Matters related to the convening of the 2018 shareholders’ meeting. (7)Matters related to the shareholders’ general meeting acceptance of shareholder proposals. (8)Approved the Election of directors. and Matters related to the shareholders’ general meeting acceptance of directors (independent directors) candidates nominated by shareholders. (9)Approved amendments to Standards for Ethical Conduct. (10)Approved the amendments to the Articles of Incorporation of this Company. (11)Approved title change and amendments to Regulations for the Election of Directors and Supervisors of this Company. (12)Approved amendments to Procedure for the Endorsement and Guarantee Operations Procedure, Operations Procedure for Loaning of Funds to Other Parties, Acquisition and Disposal of Assets, Procedure for Handling Derivatives Trading of this Company. (13)Approved amendments to Procedure for the Rules of Procedure for Board of Directors Meetings, Rules Governing the Scope of Powers of Independent Directors, Remuneration Committee Charter of this Company. (14)Import International Financial Reporting Standard No. 16 "Lease" (15)Capital decrease of the subsidiaries.	None	None	None
2018.05.03	1.Report Items7 (1)Business Performance Report - First Quarter 2018. (2)Audit reports (3)Derivative product undertaking. 2.Adoption and Discussion Items 7 (1)Prepare the 2017 surplus distribution proposal of the Company. (2)Review and approval directors (independent directors) candidates nominated by shareholders. (3)Eliminated an anti-competition restriction for newly appointed directors and their representatives.	None	None	None

12.Major Issues of Record or Written Statement Made by Any Director Dissenting to Important Resolutions Passed by the Board of Directors in 2017 and to the date of the annual report: None.

13.Resignation or Dismissal of Personnel Involved in the Company: None.

( 8 ) CPAs Fees

PAs Fees	PAs Fees
Accounting Firm		Name of CPA				Period Covered by CPAs’ Audit			Remarks
PricewaterhouseCoopers, Taiwan		Liang, Hua-Ling			Lai, Chung-Hsi	2017
								Unit: NT$thousands
Fee Range		Fee Items				Auditing Fees		Non-Auditing Fees
								Amount			Items
1	Below 2,000 thousand							600			BEPS Project fee
2	2,000 thousand(included)~4,000 thousand					3,864
3	4,000 thousand(included)~6,000 thousand
4	6,000 thousand(included)~8,000 thousand
5	8,000 thousand(included)~10,000 thousand
6	Over 10,000 thousand(included)
1. In case the non-auditing fees paid to CPAs, CPA firm and the CPA firm’s related party account for over a quart the total auditing fees, the auditing amount and non-auditing amount; also, the non-auditing service must disclosed: None (voluntary disclosure). 2. In case the auditing fee paid in the year retaining service from another CPA firm is less than the auditing fee p in the year before, the amount of auditing fee before / after the change of CPA Firm and the reasons for th said change must be disclosed: None. 3. Reduction of auditing fees by more than 15% compared to the previous year: None. PA's Information CPAs’ Information . Former CPA: Chou,Hsiao-Tzu
Date of Change Reason and Explanation of Changes State Whether the Appointment is Terminated or Rejected by the Consignor or CPAs The Opinions other than Unqualified Opinion Issued in the Last Two Years and the Reasons for the Said Opinions Is there any Disagreement in Opinion with the Issuer Supplementary Disclosure (Disclosures Specified in Article 10.6.1.4~7 of the standards)			January 1, 2017
			Due to the internal personal changes of the accounting firm.
			Client Status				CPA			Consignor
			Appointment terminated automatically				Not Applicable			Not Applicable
			Appointment rejected (discontinued)				Not Applicable			Not Applicable
			Not Applicable
			Yes	Accounting principle orpractice
				Disclosure of financial statements
				Auditingscope orprocedures
				Others
			No									v
			Explanation
				Not Applicable
. Successor CPA: Liang,Hua-Ling
AccountingFirm				PricewaterhouseCoopers,Taiwan

In case the non-auditing fees paid to CPAs, CPA firm and the CPA firm’s related party account for over a quarter of the total auditing fees, the auditing amount and non-auditing amount; also, the non-auditing service must be disclosed: None (voluntary disclosure).
In case the auditing fee paid in the year retaining service from another CPA firm is less than the auditing fee paid in the year before, the amount of auditing fee before / after the change of CPA Firm and the reasons for the said change must be disclosed: None.

( 9 )CPA's Information

CPA	Liang,Hua-Ling
Date of Engagement	January1,2017
Prior to the Formal Engagement, any Inquiry or Consultation on the Accounting Treatment or Accounting Principles for Specified Transactions, and the type of Audit Opinion that might be Rendered on the Financial Report	Not Applicable
Written Opinions from the Successor CPA that are different from the Former CPA’s Opinions	Not Applicable

The reply of the former CPA on Article 10.6.1 and 10.6.2.3 of the standards: Not Applicable.
(VII)MSI’s chairman, president, and managers in charge of its finance and accounting operations did not hold any positions within MSI’s independent audit firm or its affiliates in the most recent year.
( : )Information on Net Change in Shareholding and Net Change in Shares Pledged by Directors, Supervisors, Department Heads, and Shareholders of 10% shareholding or more
1.Changes in Shareholding of Directors, Supervisors, Managers and Major Shareholders:

				Unit: shares	Unit: shares
Title	Name	2017(Note)		2018/1/1~2018/04/17(Note)
		Holding Increase (Decrease)	Pledged Holding Increase (Decrease)	Holding Increase (Decrease)	Pledged Holding Increase (Decrease)
Chairman & President	Hsu,Hsiang	0	0	0	0
Vice Chairman & Senior Vice President of Research and Development Division	Huang,Chin-Ching	(1,500,000)	0	0	0
Senior Vice President of Materials Division	Lin,Wen-Tung	(4,000,000)	0	0	0
Senior Vice President of Production Division	Yu, Hsien-Neng	0	0	0	0
Senior Vice President of Sales Division	Lu,Chi-Long	(340,000)	0	(155,000)	0
Executive Vice President of MSI & President of the DPS BU	Chiang,Sheng-Chang	0	0	0	0
President of the EPS BU	Tsai,Rong-Fong	0	0	0	0
Independent Director	Wang,Sung-Chou	0	0	0	0
Independent Director	Liu ,Cheng-Yi	0	0	0	0
Supervisor	Hsu,Fen-Lan	0	0	0	0
Supervisor	Hsu,Jun-Shyan	(404,000)	0	0	0
Vice President of R&D Division	TENG,CHI-HUNG	0	0	(10,000)	0
Vice President of Note Book B.U.	KUO,HSU-KUANG	0	0	0	0
Vice President of Production Division	LI,CHAO-MING	0	0	0	0
Senior Special Assistant of Business PlanningOffice	TSAI,WEI-HSIN	(14,000)	0	0	0
President of IPS B.U.	LU,HUI-CHANG	0	0	0	0
Vice President of Sales Division	Hung,Yu-Sheng	0	0	0	0
Vice President of NB R&D Division.	LIN,CHIN-KUAN	0	0	0	0
Vice President of VGA Sales Division.	LIAO,CHUN-KENG	0	0	0	0
Vice President of Sales Division	CHIU,CHIH-KENG	0	0	0	0
Vice President of EPS Sales Division.	LU,CHENG-LUNG	0	0	0	0
Vice President of NB R&D Division.	PENG,JEN-FANG	0	0	0	0
Vice President of NB PM Division.	LU,KUO-HUANG	0	0	0	0
Vice President of Finance & AccountingDepartment	HUNG,PAO-YU	0	0	0	0
Assistant Vice President of Audit office	Liu,Chu-Hao	0	0	0	0

Note: Above transactions were traded in TWSE, excluding 400,000 shares transferred to a trust by Hsu, Chun-Hsien and 4,000,000 shares endowment by Lin, Wen-Tong in 2017.

2.Information of Shares Transferred

Unit: Share

					Unit: Share
The reason	Date	Tradingcounterparties	Relation	Shares	Price
Trust	2017.3.17	Jenny Yeh was entrusted by Hsu, Chun-Hsien to handle his trustpropertyaccount.	spouse	400,000	Not Applicable
		Lin,Kun-Han	Father/child	2,000,000	Not Applicable
endowment	2017.4.25	Lin,Kun-Hui	father/child	2,000,000

3.Information of Equity Pledged: None.

( ; ) Relationship among the Top Ten Shareholders

Unit 6 Share <=

(;) Relationship among the	Top Ten Shareholders	Top Ten Shareholders					Unit 6Share <=	Unit 6Share <=
Name	Shareholding		Spouse and	Minor	Shareholding by Nominee Arrangement		Name and Relationship Between the Company’s Top Ten Shareholders, or Spouses or Relatives Within Two Degrees
	Shares	%	Shares	%	Shares	%	Name	Relations
Hsu,Hsiang	51,983,151	6.15%	18,864,257	2.23%	9,376,328	1.11%	Hsu,Fen-Lan	Spouse
Fubon Life Insurance Co.,Ltd.	31,314,000	3.71%	-	-	-	-
Lin,Wen-Tung	25,672,499	3.04%	62,895	0.01%	-	-	-	-
New Labor Retirement Fund	24,560,000	2.91%	-	-	-	-	-	-
Huang,Chin-Ching	20,937,377	2.48%	2,148,564	0.25%	7,521,761	0.89%	-	-
Cathay Life insurance fully authorizes HSBC Global Asset management (Taiwan) Ltd. Investment Account	19,915,000	2.36%	-	-	-	-
Lu,Chi-Lung	18,650,835	2.21%	1,965,350	0.23%	-	-	-	-
Yu,Hsien-Neng	17,892,824	2.12%	1,079,304	0.13%	-	-	-	-
Hsu,Fen-Lan	13,408,517	1.59%	57,438,891	6.80%	9,376,328	1.11%	Hsu,Hsiang	Spouse
INVESTEC GLOBAL STRATEGY FUND-ASIAN EQUITY FUND	12,921,000	1.53%	-	-	-	-	-	-

( > )Ownership of Shares in Affiliated Enterprises 5


						Unit 7Share ?@
Long-Term Investment ANoteB	Ownership by MSI		Ownership by Directors, Management or Direct/Indirect affiliates			Total
	Shares	%	Shares	%	Shares	%
MICRO-STAR INTERNATIONAL(B.V.I.)HOLDING CO.,LTD.	0	0%	47,465,071	100%	47,465,071	100%
MSI COMPUTER CORP.	575,458	100%	0	0%	575,458	100%
MYSTAR COMPUTER B.V.	0	0%	0	100%	0	100%
MSI COMPUTER(AUSTRALIA)PTY. LTD.	221,836	100%	0	0%	221,836	100%
MICRO-STAR NETHERLANDS HOLDING B.V.	1,577,762	100%	0	0%	1,577,762	100%
MSI COMPUTER JAPAN CO.,LTD.	1,400	100%	0	0%	1,400	100%
MSI TECHNOLOGY GMBH	0	0%	0	100%	0	100%
MSI COMPUTER SARL	0	0%	0	100%	0	100%
MSI COMPUTER(SHENZHEN)CO.,LTD.	0	0%	0	100%	0	100%
MSI COMPUTER(CAYMAN)CO.,LTD.	50,000	100%	0	0%	50,000	100%
MSI COMPUTER(UK)LTD.	0	0%	0	100%	0	100%
MSI ELECTRONIC(KUNSHAN)CO.,LTD	0	0%	0	100%	0	100%
MSI COMPUTER EUROPE B.V.	0	0%	0	100%	0	100%
STAR INFORMATION HOLDING CO.,LTD.	0	0%	4,502,601	100%	4,502,601	100%
MICRO ELECTRONICS HOLDING CO.,LTD.	0	0%	33,315,472	100%	33,315,472	100%
MSI PACIFIC INTERNATIONAL HOLDING CO.,LTD.	47,204,118	100%	0	0%	47,204,118	100%
MSI KOREA CO.,LTD.	0	0%	80,000	100%	80,000	100%
MEGA INFORMATION HOLDING CO.,LTD.	0	0%	700,000	100%	700,000	100%
SHENZHEN MEGA INFORMATION CO.,LTD.	0	0%	0	100%	0	100%
MSI POLSKA SP. Z O.O.	0	0%	0	100%	0	100%
MEGA TECHNOLOGY HOLDING CO.,LTD.	0	0%	3,000,000	100%	3,000,000	100%
MSI TRADING(SHENZHEN)CO.,LTD.	0	0%	0	100%	0	100%
MEGA COMPUTER CO.,LTD.	0	0%	1	100%	1	100%
LLC“ MSI COMPUTER”	0	0%	0	100%	0	100%
MSI COMPUTER TECHNOLOGIES LIMITED COMPANY	0	0%	0	100%	0	100%
MSI ITALY S.R.L.	0	0%	0	100%	0	100%
MHK INTERNATIONAL CO.,LTD.	0	0%	1	100%	1	100%
MSI(SHENZHEN)Co.,Ltd.		0%	0	100%	0	100%

Note: Long-term investment accounted for using equity method.

C . Capital Overview

( D )Capital and Shares

1.Capital and Shares

Unit:1,000 Shares E NT$ thousands

	1.Capital	and Shares	and Shares			Unit:1,000 Shares ENT$thousands	Unit:1,000 Shares ENT$thousands	Unit:1,000 Shares ENT$thousands
Month /Year	Par Value (NT$ )	Authorized Capital		Paid-in Capital		Remark
		Shares	Amount (NT$1 ,000)	Shares	Amount (NT$1 ,000)	Sources of Capital	Ca p i ta l In c r ea s e d b y As s e ts O th er th a n Ca s h	Other
1986.08	F	500	5,000	500	5,000	Incorporation	None	F
1990.06	10	3,000	30,000	3,000	30,000	Issuance of Shares for cash 25,000	None	F
1991.08	10	6,000	60,000	6,000	60,000	Issuance of Shares for cash 30,000	None	F
1994.05	10	10,000	100,000	10,000	100,000	Issuance of Shares for cash 40,000	None	F
1995.07	10	18,000	180,000	18,000	180,000	Issuance of Shares for cash 80,000	None	F
1996.10	16	60,000	600,000	40,750	407,500	Issuance of Shares for cash137,500 and Capitalization of retained earnings 90,000	None	JUL 10,1996 Taiwan-Finance-Securit ies-I-NO.41320
1997.06	30	100,000	1,000,000	70,800	708,000	Issuance of Shares for cash 48,280 and Capitalization of retained earnings 244,500 and Capitalization of employees’ bonuses 7,720	None	APR 28,1997 Taiwan-Finance-Securit ies-I-No.32301
1998.04	F	126,000	1,260,000	109,200	1,092,000	Capitalization of retained earnings 283,200, Capitalization of reserves 70,800 and Capitalization of employees’ bonuses 30,000	None	MAR 9, 1998 Taiwan-Finance-Securit ies-I- No.23751
1999.03	108	126,000	1,260,000	136,800	1,368,000	Issuance of Shares for cash 276,000	None	DEC 17,1998 Taiwan-Finance-Securit ies-I- No.98986
1999.07	F	320,000	3,200,000	196,376	1,963,760	Capitalization of retained earnings 547,200 and Capitalization of employees’ bonuses 48,560	None	JUN 10,1999 Taiwan-Finance-Securit ies-I- No. 54332
2000.07	F	320,000	3,200,000	291,000	2,910,000	Capitalization of retained earnings 883,692 and Capitalization of employees’ bonuses 62,548	None	MAY 26,2000 Taiwan-Finance-Securit ies-I- No.45969
2001.01	F	320,000	3,200,000	291,914	2,919,136	Conversion of bonds 9,136	None	F
2001.05	F	680,000	6,800,000	376,582	3,765,818	Capitalization of retained earnings 729,784 and Capitalization of employees’ bonuses 116,898	None	MAY 23,2001 Taiwan-Finance-Securit ies-I-No.132149
2002.01	F	680,000	6,800,000	386,027	3,860,270	Conversion of bonds 94,451	None	F
2002.03	F	680,000	6,800,000	395,283	3,952,834	Conversion of bonds 92,564	None	F
2002.07	F	680,000	6,800,000	555,632	5,556,326	Capitalization of retained earnings 1,383,492 and Capitalization of employees’ bonuses 220,000	None	MAY 28,2002 Taiwan-Finance-Securit ies-I-No.129029
2003.09	F	960,000	9,600,000	660,477	6,604,775	Capitalization of retained earnings 833,448 and Capitalization of employees’ bonuses 215,000	None	JUL 17,2003 Taiwan-Finance-Securit ies-I-No.0920132258
2003.11	F	960,000	9,600,000	670,395	6,703,956	Conversion of bonds 99,181	None	F
2004.09	F	960,000	9,600,000	756,435	7,564,351	Capitalization of retained earnings 670,395 and Capitalization of employees’ bonuses 190,000	None	JUN 28 ,2004 Taiwan-Finance-Securit ies-I- No.0930128388
2005.07	F	1,020,000	10,200,000	782,128	7,821,282	Capitalization of retained earnings 226,931 and Capitalization of employees’ bonuses 30,000	None	JUL 11,2005 Taiwan-Finance-Securit ies-I- No.0940127923
2006.07	F	1,500,000	15,000,000	880,562	8,805,624	Capitalization of retained earnings 860,341 and Capitalization of employees’ bonuses 124,000	None	JUL 21,2006 Financial-Supervisory-S ecurities-I No.0950132069
2007.07	F	1,500,000	15,000,000	882,447	8,824,474	Employee stock option exercise 18,850	None	F

2007.09	F	1,500,000	15,000,000	947,781	9,477,811	Capitalization of retained earnings 528,337 and Capitalization of employees’ bonuses 125,000	None	JUL 9,2007 Financial-Superviso ry-Securities-I No.0960035165
2007.10	F	1,500,000	15,000,000	950,277	9,502,770	Employee stock option exercise 24,960	None	F
2008.02	F	1,500,000	15,000,000	950,754	9,507,540	Employee stock option exercise 4,770	None	F
2008.05	F	1,500,000	15,000,000	950,937	9,509,372	Employee stock option exercise 1,831	None	F
2008.08	F	1,500,000	15,000,000	951,304	9,513,040	Employee stock option exercise 3,669	None	F
2008.09	F	1,500,000	15,000,000	951,459	9,514,590	Employee stock option exercise 1,550	None	F
2008.10	F	1,500,000	15,000,000	1,007,696	10,076,965	Capitalization of retained earnings 380,374 and Capitalization of employees’ bonuses 182,000	None	JUL 1,2008 Financial-Superviso ry-Securities-I No. 0970032658
2008.10	F	1,500,000	15,000,000	1,008,028	10,080,285	Employee stock option exercise 3,320	None	F
2009.02	F	1,500,000	15,000,000	1,008,074	10,080,745	Employee stock option exercise 460	None	F
2009.04	F	1,500,000	15,000,000	1,008,246	10,082,455	Employee stock option exercise 1,710	None	F
2009.07	F	1,500,000	15,000,000	1,008,742	10,087,416	Employee stock option exercise 4,961	None	F
2009.09	F	1,500,000	15,000,000	1,067,626	10,676,262	Capitalization of retained earnings 504,123 and Capitalization of employees’ bonuses 79,533 Employee stock option exercise 5,190	None	JUL 1,2009 Financial-Superviso ry-Securities-I No. 0980032766
2009.10	F	1,500,000	15,000,000	1,068,132	10,681,322	Employee stock option exercise 5,060	None	F
2010.01	F	1,500,000	15,000,000	1,068,667	10,686,672	Employee stock option exercise 5,350	None	F
2010.05	F	1,500,000	15,000,000	1,069,191	10,691,912	Employee stock option exercise 5,240	None	F
2010.07	F	1,500,000	15,000,000	1,069,249	10,692,492	Employee stock option exercise 580	None	F
2010.11	F	1,500,000	15,000,000	1,069,347	10,693,472	Employee stock option exercise 980	None	F
2011.01	F	1,500,000	15,000,000	1,070,225	10,702,252	Employee stock option exercise 8,780	None	F
2011.04	F	1,500,000	15,000,000	1,071,223	10,712,232	Employee stock option exercise 9,980	None	F
2011.09	F	1,500,000	15,000,000	996,157	9,961,572	Treasury stock cancellation 750,660	None	JUL 4,2011 Financial-Supervisory-S ecurities-I No.1000031682 AUG 26,2011 Financial-Supervisory-S ecurities-I No. 1000040409
2011.11	F	1,500,000	15,000,000	964,157	9,641,572	Treasury stock cancellation 320,000	None	OCT 28,2011 Financial-Supervisory-S ecurities-I No.1000052520
2012.02	F	1,500,000	15,000,000	924,856	9,248,562	Treasury stock cancellation 393,010	None	FEB 13,2012 Financial-Supervisory-S ecurities-I No. 1010004861
2012.04	F	1,500,000	15,000,000	884,856	8,848,562	Treasury stock cancellation 400,000	None	APR 18,2012 Financial-Supervisory-S ecurities-I No.1010016081
2012.07	F	1,500,000	15,000,000	844,856	8,448,562	Treasury stock cancellation 400,000	None	JUL 18,2012 Financial-Supervisory-S ecurities-I No.1010033145

(1)Type of shares

(1)Type of shares
	As of APR 17,2018 Unit 6Shares
ype of shares	Authorized Capital			Remarks
	Issued Shares (Note)	Un-issued Shares	Total Shares
Common stock	844,856,199	655,143,801	1,500,000,000	Authorized capital stock, of which, 150,000 thousand shares are reserved for exercising Conversion of bonds and 80,000 thousand shares are reserved for employee stock options.

Note 6 Listed stock.

(2)Information for Shelf Registration: None.

2.Status of Shareholders

As of APR 17,2018 Unit 6Shares	As of APR 17,2018 Unit 6Shares	As of APR 17,2018 Unit 6Shares	As of APR 17,2018 Unit 6Shares	As of APR 17,2018 Unit 6Shares	As of APR 17,2018 Unit 6Shares
Government Agencies	Financial Institutions	Other Juridical Persons	Domestic Natural Persons	Foreign Institutions & Natural Persons	Total
0	30	260	41,121	677	42,088
0	61,606,863	117,834,561	338,913,778	326,500,997	844,856,199
0.00%	7.29%	13.95%	40.11%	38.65%	100.00%

3.Shareholding Distribution Status

(1)Common Shares

(1)Common Shares	(1)Common Shares	(1)Common Shares	(1)Common Shares
As of APR 17,2018 Unit 6Shares
Class of Shareholding	Number of Shareholders	Shareholding (Shares)	%
1G999	22,898	3,861,284	0.46%
1,000G5,000	14,737	29,664,478	3.51%
5,001G10,000	2,022	14,927,807	1.77%
10,001G15,000	669	8,244,301	0.98%
15,001G20,000	331	6,002,809	0.71%
20,001G30,000	330	8,251,485	0.98%
30,001G40,000	164	5,751,120	0.68%
40,001G50,000	121	5,584,671	0.66%
50,001G100,000	251	17,966,948	2.13%
100,001G200,000	184	26,511,411	3.14%
200,001G400,000	128	36,673,843	4.34%
400,001G600,000	67	32,363,380	3.83%
600,001G800,000	26	18,346,000	2.17%
800,001G1,000,000	27	24,363,759	2.88%
1,000,001 or over	133	606,342,903	71.76%
Total	42,088	844,856,199	100.00%

(2)Preferred share 6 The company did not issue any preferred share.

4.List of Major Shareholders

4.List of Major Shareholders
	As of APR 17,2018 Unit 6Shares
Share holding Holder's Name	Shares	=
Hsu,Hsiang	51,983,151	6.15%
Fubon Life Insurance Co.,Ltd.	31,314,000	3.71%
Lin,Wen-Tung	25,672,499	3.04%
New Labor Retirement Fund	24,560,000	2.91%
Huang,Chin-Ching	20,937,377	2.48%
Cathay Life insurance fully authorizes HSBC Global Asset management(Taiwan)Ltd. Investment Account	19,915,000	2.36%
Lu,Chi-Lung	18,650,835	2.21%
Yu,Hsien-Neng	17,892,824	2.12%
Hsu,Fen-Lan	13,408,517	1.59%
INVESTEC GLOBAL STRATEGY FUND-ASIAN EQUITY FUND	12,921,000	1.53%

5. Market Price, Net Worth, Earnings, and Dividends per Share

	Unit: Shares;NT$	Unit: Shares;NT$	Unit: Shares;NT$	Unit: Shares;NT$	Unit: Shares;NT$	Unit: Shares;NT$	Unit: Shares;NT$
Items	Year				2017	2016	As of April 30, 2018
Market price per Share	Highest Market Price				82	90.9	105.00
	Lowest Market Price				59.10	39.2	77.20
	Average Market Price				71.69	67.76	92.18
Net worth per share	Before Distribution				32.91	31.83	35.54(Note2)
	After Distribution				(Note1)	27.33	(Note1)
Earnings per share	Weighted average shares			Basic	844,856,199	844,856,199	844,856,199 (Note2)
				Diluted	852,219,286	856,718,549	851,666,268 (Note2)
	Earnings per share	Before adjustment		Basic	5.84	5.79	2.49 (Note2)
				Diluted	5.79	5.73	2.47 (Note2)
		After adjustment		Basic	(Note1)	5.79	-
				Diluted	(Note1)	5.73	-
Dividends per share	Cash dividends	Dividends from Retained earnings			(Note1)	NT$3.5/Share	-
		Dividends from Capital Surplus			(Note1)	NT$1/Share	-
	Stock dividends	Dividends from Retained earnings			-	-	-
		Dividends from Capital Surplus			-	-	-
	Accumulated undistributed dividends				-	-	-
Analysis of return on investment	Price/Earning Ratio		Basic		12.19	10.86	-
			Diluted		12.29	10.97	-
	Price/Dividend Ratio				(Note1)	13.97	-
	Cash dividends yield rate				(Note1)	7.16%	-

Note1: Subject to the approval of 2018 annual shareholders’ meeting. Note2: 2018Q1 financial report was reviewed by CPA.

6.Dividend policy of the company and its implementation

(1)Dividend Policy

The Company is in a highly changeable industry. Many high-end lucrative products are in growth. The distribution of dividends shall be made taking into consideration the needs of Company future development and operation, and the interests of shareholders. If the annual results shall have profit, such profits should first pay all taxes and reimburse accumulative loss, then take 10% legal reserve and special reserve according to the Company Act. After previous deductions and reserves, the Company can take 10% to 90% of the distributable earnings plus undistributed retained earnings as bonus. The Board of Directors shall propose profit distribution plan to be approved by the shareholders’ meeting.

Shareholders’ bonus shall be distributed in accordance with the percentage of the shares owned among the total outstanding shares of the Company. Shareholders’ bonus will be distributed through the forms of both cash and stock dividends. In such distribution combination, cash dividends shall take no less than 30% of the total distributed bonus.

In the event there are deductions under the account of shareholders' equity which cannot be allocated from after-tax profits of the current fiscal year, whether accumulated from previous year or occurred in the current year, the Company shall allocate sufficient special reserves from the beginning aggregate balance of undistributed earnings and subtract such shareholders’ equity deductions before profits distribution.

(2)Proposed Distribution of Dividend 5 2017 Cash Dividends per Share NT$4.5

(3)Any expected major changes in the dividend policy: None

7.Impact to the company's business performance and earnings per share (EPS) for free shares allotment proposed by this shareholders' meeting: Not applicable.
8.Compensation for employees, directors, and supervisors
(1)Quantity or scope of compensation for employees, directors, and supervisors as prescribed by the articles of association (Article 19-1)

The pre-tax income of the current fiscal year shall first offset the accumulated deficits. If the balance is positive, then the Company shall allocate the remuneration to be distributed to employees, directors and supervisors in accordance with the following ratio.

A.Employee remuneration in the percentage of 6% to 10%. Individuals eligible for employee remuneration include the Company’s employees and the employees of the Company’s subsidiaries meeting certain requirements. Such requirements are to be set by the Board of Directors.
B. Remuneration to be distributed to directors and supervisors shall not exceed 1%.

The decision of the percentage of remuneration to be distributed to employees, directors and supervisors set forth in the preceding Paragraph, the forms of distribution (cash or stock dividends) and the amounts and shares thereof shall be made through the special resolutions of the Board of Directors and reported to the shareholders’ meeting.

(2) Accouting methods for the differences between the remunerations’ provision amount and actual distribution amount:

The remunerations for employees, directors, and supervisors in 2017 according to contemporary profits and with reference to the distribution ratio from the year before and the percentage specified in the Articles of Incorporation. In case of any difference between the actual distributed value decided by the Board of Directors, it will be handled as changes in accounting estimates.

(3)Situation of the Board of Directors’ passing remuneration distribution

A. The amount of employee, director and supervisor remuneration in cash or stock distribution. If it differs from the estimated amount in the recognized expense year, the balance, reason, and handling situation shall be disclosed: The Board of Directirs passed a resolution, determining that the remuneration of employees in 2017 is NTD448,000,000, and the remuneration of directors and supervisors in 2017 is NTD 42,900,000, which are the same as the recognized expense amount in 2017.
B. The proportion of employee remuneration amount in stock distribution based on the net profit after tax from stand alone financial statements of this period and the total employee remuneration: None
(4)For the actual distribution situation of employee, director and supervisor remuneration last year (including distributed shares, amount, and stock price), if it differs from the recognized employee, director and supervisor remuneration, the balance, reason, and handling situation shall be specified:
In 2016, the relevant information on the employee, director and supervisors remuneration is summarized below: Employee bonus distribution:NTD 438,000,000; director and supervisor remuneration distribution:NTD40,700,000. It is the same as the recognized expense amount in 2016.

The distribution situation passed by the Shareholders’ Meeting is the same as the proposed situation passed by the Board of Directors.

9.Repurchase by the company of its own shares: None.
( H )Corporate bond: None.
( I )Preferred shares: None.
( J )Overseas depositary receipt: None.
( 8 )Employee stock warrant: None.
( 9 )Restricted Employee Shares: None.
( K )The section on issuance of new shares in connection with mergers or acquisitions or with acquisitions of shares of other companies shall specify the following matters:
1.If, during the most recent fiscal year or during the current fiscal year up to the date of publication of the annual report, the company has completed any issuance of new shares in connection with a merger or acquisition or with acquisition of shares of any other company 5 None.
Where the board of directors has, during the most recent fiscal year or during the current fiscal year up to the date of publication of the annual report, adopted a resolution approving any issuance of shares in connection with a merger or acquisition or with acquisition of shares of any other company 5 None.
( L )The status of implementation of capital allocation plans 5
A description of the plan
Where various issuance or private placement of securities have yet to be completed, or have been completed in the most recent 3 years but where the benefits of the plan have yet to be realized 5 All securities of the Company have been issued and no unrealized benefits.
2.Status of implementation: Not Applicable

M . Operation summary

( D )Business content

1.Scope of business

(1)The purpose for which the Company is formed shall be as follows:
Design of various computer hardware and software and manufacture, sale and purchase of computer products, parts and components;
Manufacture and sale of electronic components and parts;
Import-export trading business in relation of the foregoing businesses;
Agency business for quotation, bid and distribution of related products;
CC01030 Manufacturing business of electric appliances;
CC01060 Manufacturing business of wired communications equipments;
CC01070 Manufacturing business of wireless communications equipments;
CE01030 Manufacturing business of optical devices;
CH01040 Manufacturing business of toys;
F109040 Wholesale business of toys and entertainment products;
F113020 Wholesale business of electric appliances;
F113050 Wholesale business of office machines and equipments;
F113070 Wholesale business of telecommunications equipments and materials;
F209030 Retail business of toys and entertainment products;
F213030 Retail business of office machines and equipments;
F213060 Retail business of telecommunications equipments and materials;
F213010 Retail business of electric appliances;
CC01101 Manufacturing business of regulated RF telecommunications equipments and materials;
F401021 Import business of regulated RF telecommunications equipments and materials;
CF01011 Manufacturing business of medical equipments;
F108031 Wholesale business of medical equipments;
F208031 Retail business of medical equipments;
CE01010 Manufacturing business of general equipments; and
ZZ99999 All other businesses not prohibited or restricted by laws and regulations except businesses requiring special permits.

(2)Proportion of each business

2017

		Unit: NT$thousands
Major product	Sales revenue	%
Computer and peripherals	106,419,905	100%

(3) Current products and services of the Company

A. Motherboard: Intel® platform and AMD® platform Gaming motherboards
B. Professional multi-media display card: Nvidia® and AMD® series of display cards

Professional multi-media Gaming products: keyboard, mouse, headset, and controller.

C. Server: Server, work station, storage system, network application system, network invasion safeguard system, and integrated threat management firewall system, telecommunication-grade online firewall (NGFW) equipment system, IoT boundary server and gateway, IoT facial recognition gateway.
D. Desktop computer: Gaming desktop computer, mini-computer, desktop computer, All in One PC, Gaming All in One PC
E. Industrial computer: Industrial computer motherboard, industrial computer system, POS, PPC, industrial hand-held tablet.
F.Telematics and Automotive Electronics: Telematics integrated with advanced auxiliary driving system solution, automobile audio-visual combined with telecommunication smart control solution.
G. Laptop: Super-band dual display card high-performance Gaming laptop, super thin Gaming laptop, high-performance multi-media laptop, mobile station laptop, virtual reality exclusive laptop, and virtual reality scene design-oriented workstation laptop.
H. Display: Gaming display to meet the demand of high-level players
(4) New products (services) planned to be developed
A. Motherboard:
Development of the second-generation AMD® Ryzen, Ryzen Threadripper series GAMING, PRO, and the latest and smallest platform motherboard
Development of the latest Intel® platform 300 series GAMING, PRO, and the latest and smallest platform motherboard.
B. Professional multi-media display card:
Development of more powerful and lower-energy consumption display cards and cooling modules
Development of super band display cards that adopt high technology and materials
Development of better heat sink performance and low-noise fans
Display cards with optimized and enhanced lighting feature and effect
Continued optimization of display card support software, such as Afterburner, GAMING APP, and Mystic Light
Development and combination of machine learning
Peripheral professional multi-media Gaming products
Advanced development of multi-media Gaming products with innovative features and effects by listening to the players, such as the Gaming keyboard, the Gaming mouse, and the Gamingheadset.
Development of professional Gaming peripheral products, such as the Gaming controller and the Gaming mouse pad, among others.
Development and design of multi-media product support software, such as the GAMING CENTER
C. Server:
Development of the new-generation Intel® platform (Mehlow) work station
Development of the new-generation Intel® platform (Mehlow) hyper-convergence storage system
Development of the new-generation Intel® platform (Ice Lake) network application system
Development of the new-generation IoT multi-purpose facial recognition gateway and optimization of the overall operating performance
Development of the multi-functional IoT boundary server and gateway controller
Development of telecommunication-grade firewall (NGFW) 16U equipment system
Development of the high-density integrated network threat management 6U/4U chassis system
Development of the new-generation Intel® FPGA DDoS attack defense equipment
Development of the new-generation Intel® platform (Mehlow) network intrusion prevention system (IPS)
Upgrade of support up to the server and work station and storage system of the new-generation Intel® platform central processor (Cascade Lake)
D. Desktop computer:
Development of products of the desktop Gaming series of the latest Intel® 300 series of platform (Coffee Lake)
Development of products of the Cubi N mini-computer series of the latest Intel® Gemini Lake series of platform

Continued development of the All in One PC of the latest Intel® platform
Continued development of the proprietary Silent Storm cooling module technology for high-level Gaming desktop units
Development of Gaming desktop units capable of reducing the operating noise of the machine
Continued development of the Gaming design required for LAN Party players
Development of the technology that integrates in depth with the Gaming monitor - Gaming OSD APP
E. Industrial computer:
Development of the KabyLake fan-free and expandable PCI Express and PCI Express robust system
Development of Full-size Mini-PCIe interface expansion card with multiple Power USB features
Development of industrial M12 connector waterproof and dust-proof high-performance system
Development of the KabyLake low-power consumption and high-performance fan-less super thin digital electronic bulletin board system that combines the HDMI 2.0 high-resolution image processing feature
Development of the KabyLake thin high-performance image processing motherboard with over-voltage and over-current protection
Development of the changeable-structured products with an expandable I/O module motherboard integrated with the system
Development of the IoT system and total package solution
Development of the single unit digital electronic bulletin board beginner's simple editing software to quickly provide advertisement managing solution
Development of the Apollo Lake broad-temperature small low power-consumption CPU module product
Development of the broad temperature small IoT fan-less embedded system supporting railway regulations
Development of a system that can support two sets of PoE and CAN Bus at the same time
Development of automobile embedded system supportive of broad temperature and broad pressure specifications
F.Telematics and Automotive Electronics:
Development of the FUNTORO Sleeper Bus Solution, with addition of value-added features such as advertisement playing/LBS/cloud back office management
Development of the FUNTORO WiFi Streaming MOD Solution, with automobile Infotainment as the main part and Internet access/travel information/GPS/advertise transmission/LBS/could back office management, among other features, added.
Development of the FUNTORO Sightseeing Solution to provide an audio-visual interactive platform and LBS/cloud back office management, among others, as value added features.
Development of an onboard cloud advertise solution that can be connected in series to the cloud back office for information exchange and management in order to provide clients with diversified innovative commercial advertisement operating modes.
G. Laptop:
Innovation on super light and thin Gaming laptop with both high performance and outstanding portability and emphasis on its heat sink ability and improved high-quality panel and 3D sound effects to further upgrade the user experience
Development of Gaming laptop with the highest-specification display card that combines a wide viewing angle and a wide color gamut, ultra-high update rate, excellent precision color calibration True Color, one-button multi-color Gaming keyboard, built-in Hi-Res Audio amplifier, among other technologies in order to provide players with a best audio-visual feast.
Combination of virtual reality with Microsoft mixed reality to provide various types of optimal virtual reality application platforms
Development of a 3D surround sound solution so that players are more involved in Gaming and virtual reality games
Development of a Hi-Res laptop approved by the JAS with an optimized high sound quality and sound effect hardware device to provide ultra-clean sound effects that exceed the sound quality of a CD and bring the listening experience in Gaming to a new era
Reinforcement of the optimized software design that combines the single button multi-color keyboard of an Gaming laptop and the light change macro and continued reinforcement of the feedback from the keyboard felt by the players so that they can adjust the LED display and color on the keyboard by themselves and combination of the keyboard back light and gaming scenario to make the optimal keyboard lighting effects and percussion in the industry possible.
Continued optimization of projects concerning professional mobile work stations that have been recognized

by multiple ISVs and the performance and compatibility of ISV software for drawing and charting and devotion to a higher specification graphics processing unit to go with the lighter and thinner laptop that comes with outstanding heat sink design for excellent experience and portability as far as the professional mobile works station is concerned.

H. Display:
Development of curved Gaming screen
Development of Gaming display to meet the demand of high-level players
Development of the technology that integrates in depth with the Gaming host - Gaming OSD APP

2.Industry Overview

(1) Current Status and Development of the Industry

Data of the IDC, a survey and research institution show that the overall shipment of PCs throughout 2017 showed a slight decline from that in 2016. With stimulating factors such as the constant renewal of Gaming, VR, and AR (augmented reality) products and the flourishing development of Gaming games and broadcasting platforms, users have increased demand for high-end PCs. Besides, various types of apps are constantly introduced such as those for the IoT. Therefore, the derived business opportunities are in favor of increasing the sales of related products. The current development status of related service items of the Company on the market is briefed as follows:

A. Parts and components:

An overview of the market profile of motherboards throughout the world in 2017 reveals that despite the slight decline in the overall volume, with the flourishing development of Gaming-related sectors around the world, users have increased demand for high-end computers with computing capability and this drives up the needs for motherboards and display cards meant exclusively for medium-to-high-end Gaming. Looking into 2018, Intel, AMD, and nVidia all have related new products to be introduced to the market. Plus the constantly renewed numerous games, it is believed that PC platform users will be inspired to upgrade or completely replace their systems. Meanwhile, the demand for further division will continue to ferment and users will be driven to choose products that better meet their needs. With these two major factors combined, it is expected that as far as the high-end computer market is concerned, MSI's motherboards and display cards will grow further in 2018.

B. Systematic products:

The global PC market is reaching saturation at the moment. Whether it is desktop computers or laptops, high-end PCs for Gaming have become a way for various manufacturers seeking transformation and growths. Since Gaming-related industrial developments are at their budding stage, the devotion of numerous service providers and the constant introduction of various types of PC games are conducive to the expansion of the market scale for games and Gaming. Micro-Star has been cultivating the Gaming field for many years. System products are developed from the perspective of users. Software and hardware are highly integrated. More thoughtful new features continue to be developed. On the high-end PC market such as that for Gaming, MSI has been an optimal choice for the players.

C. Servers, industrial computers, and automobile electronics:
Industrial computers are mainly applied in different industries for a variety of unique purposes. The products are mostly designed with features tailored to suit the needs of different customers. The commercial model features a diverse set of products despite the small quantity. Customization and uniqueness also bring about higher net profits. The mean net profits for manufacturers of industrial computers around the world can all reach 30% to 40%.

The statistics of DIGITIMES Research show that the shipment of servers around the world in 2018 is expected to growth by another 9% to reach 13.38 million sets. The central servers for data, in particular, can grow by up to 15% to 20%.

According to the survey conducted by Topology Research Institute, the sales of automobiles in 2018 will break 97 million units and the gradual increase in the weight of automobile electronic parts and components, the Industrial Technology Research Institute (IEK) estimates that the global automobile electronics market scale will reach US$360 billion by 2025. The business opportunities are huge. Due to the fact that automobiles have to withstand challenges posed by various types of weathers and terrains, electronic parts and components have to go through strict certification. In other words, the technical requirements are high, which makes accession uneasy. Once certified by customers, however, steady orders can be guaranteed.

(2)Correlation of the upstream, midstream, and downstream of the industry:

Upstream Mid-Stream Dowmstream

==> picture [451 x 331] intentionally omitted <==

----- Start of picture text -----

Semiconductor
Special IC Motherboard
CPU
Network server
Static memory
Monitor
Logic circuit pinch
Programmable (ROM) Work station
Interface cards
Diode
PSU Desktop
Metallic plastic
PCB Computer case Notebook
CPU socket
Connectors
Computer keyboard
Sockets
Software Soft/Hard Drives
Basic I/O Systems
OS Other I/O
----- End of picture text -----

(3)Product development trends

N

A. Parts and components:

Intel, AMD, and nVidia are the primary chip suppliers for parts and components. All of them had new products to be introduced to the market in 2018 that will exceed existing commercial products in both performance and specification. Meanwhile, with the rise of the block chain technology and digital currency fads, the demand for 4K gaming continues to grow on the market. A new wave of high-end computers on the market can be expected. There will be more significant growths with the introduction of more games introduced to the market. As for the production and manufacturing of PC parts and components, Taiwanese manufacturers, includingMSI, remain in the lead position.

B. Systematic products:

The computer industry is gradually entering a stage featuring diversified changes. The development of products is no longer limited to the hardware itself; rather, it is the integration of software and hardware platforms. Starting off with the deep demand of users, with regard to systematic products such as laptops and desktop

computers, MSI is devoted to integrating hardware and software, addition of new features, and enhancement of

audio-visual experiences. With the addition of Gaming screens to the product line, the PC and the screen are integrated at a depth and features of new software and hardware are re-defined from the perspective of players so that the two are mutually complementary and players are able to enjoy unprecedented experiences.

C. Servers, industrial computers, and automobile electronics:

Industrial computers are developing toward total solutions from hardware to software and from the front end to the back end. Vertical integration of services and applications requires the capability to develop the firmware and the technicality for vertical integration so that high-performance, integrative, expansive, and highly compatible system platforms may be applied to a variety of sectors. Therefore, individual manufacturers are developing the vertical integration application market and expediting their technicality required for a high level of integration. A flexible operational pattern and cost leadership will be the new wave of challenges. Cloud computing has brought about structural changes for the server market. The large data center increases the shipment and revenue for server suppliers on the one hand yet the demand for new servers from the business circle will be decreased as businesses are using server applications in a virtual way or using services provided by cloud service providers directly on the other hand. For the server business, Micro-Star continues to adopt the dual-track approach, that is, taking care of both ODM and SI operations, with the mainstream x86 framework at its focus. Meanwhile, it caught up with the conversion of the new platform Purley in 2017 and deployed ODM as part of unified threat management (UTM) around the world in order to provide total solutions for various types of information security.

In the development of automobile electronics, smart safety is the mainstream, including telematics, self-driving cars, and the Internet of vehicles, among others. With foreign heavyweight manufacturers putting in resources, Taiwan telematics suppliers are following suit and entering the automobile electronic field. MSI is a long-term investigator of telematics systems and has built a deep and solid R&D foundation. Certified by related international standards, it will continue to apply its robust capabilities in integrating software and hardware to contribute to total solutions such as FMS.

3. Overview of Technology and Research and Development

Research and development expenses and technologies or products successfully developed in the most recent year and up to the date the annual report was printed

Unit: NT$thousands

Annual research
and development
expenditure

Research and development outcome

2017.1.1~2017.12.
31
3,200,893
2018.1.1~2018.3.3
1
936,384

A. Motherboard
�
Motherboards that support the new-generation Intel® X299 and Z370 series
�
Motherboards that support AMD®’s latest platform, the second-generation AM4 and TR4 series
�
MYSTIC LIGHT is the exclusive lighting control software tailored by MSI for the gamers. Besides
through the computer operating system, it can also be easily controlled through the mobile APP or
on the smart phone and tablet; the color of light can be easily switched. MYSTIC LIGHT SYNC, on
the other hand, is the product of the collaboration between MSI and numerous peripheral
manufacturers. Simply useMSI’s motherboard and you can easily manipulate the peripheral
accessories through the motherboard, such as the color of the keyboard, the mouse, and the
headset to accomplish even more comprehensive and perfect lighting control effects.
�
M.2 SHIELD FROZR is the solution introduced by MSI in order to provide high-speed M.2 SSD
with the best performance and to avoid the issue of reduced speed caused by overheating. The
integrated design with the chip set and the heat sink, M.2 Shield FROZR features avoidance of high
temperature and reduced speed, protection of the SSD device, and guaranteed high-speed
operation of SSD. It is the optimal M.2 Thermal design of the next generation.
�
OPTANE GENIE, on the other hand, is the simple installation and setup feature of the MSI
motherboard for the latest Optane storage device of Intel. OPTANE GENIE is a thoughtful design
that help reduce 70% of the steps for users while the latter set the system storage device and
users do not need to be familiar with the BIOS interface and setup and can still easily complete
installation.
�
The primary niche with CORE BOOST is that it targets the trend where processor suppliers are all
focusing on increasing the number of cores that a processor has at the moment while they are
advancing primary products in order to enhance the computing capability of the processor. By
optimizing the design of power supply to the processor on the motherboard and with higher-level
electronic parts, latest processors of the new generation consisting of 6 cores or even 8 cores and
above for perfect support are made possible.
�
EXTENDED HEATSINK is the heat sink designed on the motherboard. The updated process and
tactic mechanical design enable the original heat sink to break through existing mechanical limits
and realize a bigger cooling surface area and heat capacity so that the processor power supply IC
on the motherboard, under better cooling conditions, can support high-speed computing of a
processor consisting of more cores.
�
KILLER XTEND is the latest network solution configured with three killer Ethernet ICs and one killer
wireless IC that is made possible because of the collaboration between Micro-Star and Qualcomm.
With multiple network ICs working together synergistically, players have the best online
experience through ordinary desktop computers. They can also share access to other needy
devices, such as smart phones, laptops, and tablets through the KILLER XTEND network on the
motherboard so that all peripheral devices can accommodate the high-speed sensation brought
about by the killer network.
�
GAME TRY IT is an integrative game-optimizing feature. Players are entitled to higher game frames
through the voltage regulation on the motherboard and devices such as the acceleration
processor, memory, and hard drive in order to have better gaming experience. With the most
popular Player Unknown's Battlegrounds at the moment, for example, an average of 30 frames per
second can be increased, which is equivalent to the display card level a notch higher; it brings
about more substantial gains for players.
�
MINING OPTIMIZATION, on the other hand, is the motherboard with unique features researched
and developed exclusively in response to the virtual currency-mining craze by Micro-Star.
B. Professional multi-media displaycards

�
The new-generation cooling module with the latest display, drawing, and computing chip in the
industry provide users with even higher-level computing performance and low consumption.
�
The professional card with multi-purpose block chain applications is applied in the regional chain
high-level computing center.
�
The high-level display card combining water-cooling and wind cooling dual-power cooling system
is researched and developed. The water-cooling framework of the new generation helps with
effective cooling at the core of the display card. The cooling wind flow system also simultaneously
helps cool the memory and the power supply module and provide an even steadier user platform.
�
The water-cooling system is designed with a pure copper micro-waterway and a base to highly
effectively conduct and transmit heat to the high-speed water-cooling pump. The independent
cold-type design along with the low profile and easy installation make additional assembly
unnecessary; easy installation for use is possible. The fan blade design with an enlarged diameter
quietly helps with cooling and also increases the airflow for cooling purpose, creating the most
quiet user environment. With Micro-Star’s stunning RGB light effects, the exclusive MSI Mystic
Light can be used to control various lighting patterns.
�
The optimized TWIN FROZR cooling module further advances the proprietary wind flow-oriented
control technology. It directly guides the airflow to the SuperSU heat pipe. The large-diameter
ultra-conductive heat pipe and the improved heat pipe configuration significantly increase the
conductive efficiency. The premium cooling coatings adopted more directly realize the cooling
performance and bring down the temperature of the drawing core chip more quickly. Along with
the proprietary patented large-diameter new Torx 2.0 composite fan blades, heat is discharged
more effectively. In addition, the stunning Gaming RGB lighting system provides tens of thousands
of color changes.
�
The proprietary square heat conductive contact surface is designed with a large-diameter
ultra-conductive heat pipe to significantly enhance the heat conductive efficiency.
�
The proprietary patented TriFrozr cooling design features three strengthened fans along with huge
heat sinks and multiple heat pipes for optimal cooling performance.
�
The proprietary patented HybridFrozr energy-saving silent technology can monitor temperatures
and have the fans to provide low-temp, silent, and high-performance cooling reflective of different
use conditions. The ZERO FROZR smart stop and zero noise fan cooling technology makes
discontinued operation in a low load user scenario possible; it remains quiet and silent.
�
The proprietary large-diameter patented design of Torx Fan 2.0 combines traditional and
traction-type fan blades in one to further advance the performance. Compared to the previous
generation of Trox Fan that was already well received, it effectively enhances the airflow and the
cooling effect. There is more air flow yet the operating noise is not increased; the mute feature
becomes more outstanding.
�
Introduction of the military-specification fourth generation materials: Hi-c CAP, NEW SFC, and Solid
CAP. Certified by MIL-STD-810G, the robust and reliable materials makeMSI’s military-specification
fourth generation materials a synonym for high quality and stability.
�
The high-speed display card SLI bridge researched and development can perfectly connect two
Nvidia advanced display cards, precisely display 4K high quality resolution and high speed screen
update frequency, and eliminate screen aliasing, slow display, and input delay in order for players
to experience smoother, quicker, and more exquisite gaming screens, satisfying their strict demand
for what is presented on the screen and the performance.
�
The MSI display card calibrating software Afterburner continues to be optimized so that it can
precisely monitor and calibrate important parameters such as the clock and the voltage to fully
release the performance potential of the display card and to help players obtain high-level
overclocking effects.
�
The optimized MSI GAMING display card exclusive real-time calibrating software GAMING APP
enables users to easily switch among overclocking/gaming/mute modes and also to select the
eye-protection EyeRest mode. Simply press one key and the blue light released from the screen
can be reduced. This offers an additional checkpoint for vision health of those who need to stare
at the screen over an extended period of time in order to process documents and browse web
pages and video players. For players seeking high-quality presentation of an exciting Gaming
battleground, on the other hand, GAMING APP also offers the Movie Mode and the GAMING
Mode so that users show the optimal effects on the screen accordingto the different user

scenarios and the gaming screen and film playing become more clear, sharp, defined, and
touching. The brand new Dragon Eye feature enables players to watch online broadcasting or
network videos simultaneously while playing games; it is highly convenient and fun.
�
The MSI Gaming App offers the virtual reality (VR) optimization technology to optimize virtual
reality by simplifying pressing a key with the unparalleled, topnotch technology and precise
design. Meanwhile, VR partners are combined in the optimization and upgrade so that users can
enjoy vivid virtual reality experience.
�
The propriety Mystic Light software of Micro-Star freely controls the stunning RGB light effects.
Meanwhile, Mystic Light SYNC and Mystic Party may be applied to link and simultaneously control
related RGB devices, including the display card motherboard, Gaming multi-media peripheral
equipment, among others, to signify its uniqueness.
Gaming multi-media
�
The Vigor multi-media Gaming mechanical keyboard is researched and developed exclusively for
Gaming players. The low-profile aluminum dark metal hairline upper cover and up to 14
replaceable keycaps enable players to find the most comfortable user experience for themselves.
The Cherry MX axle-calibrating feel is the key to winning in a battleground of seasonable games.
The unique Vigor Gaming mode lets the keyboard enter the battle state right away, without
interference from system information any more. No matter how many keys are pressed at the
same time, it ensures that the command of each key is effectively and precisely enforced. The
Vigor multi-media Gaming keyboard has its own multi-media control keys so that users are able to
control multi-media play features such as volume/play/pause during a game. The Vigor
multi-media Gaming keyboard has RGB Mystic Light. With Micro-Star’s exclusive Mystic Light
control software, Gaming players can set on their own up to a million options of light colors and
effects. Each key is able to set light colors separately so that users are entitled to complete
autonomy.
�
The Vigor multi-media Gaming keyboard has hot keys to support shift among different modes of
the MSI app (overclocking/Gaming/mute). Professional players do not need to leave a game and
can still shift among the three different performance modes.
�
The latest Gaming sensor engine and the special Japanese professional Gaming micro-switch are
researched, developed, and used and the robust aluminum alloy framework is adopted to produce
the Clutch high-performance ergonomic Gaming mouse to go with the gold-plated USB connector
and braided cable.
�
The Immerse Gaming headset researched and developed exclusively for players includes the
Hi-Res certified speaker to provide players with the most realistic and immersive sound experience
and certified high-resolution virtual 7.1 surround sound while playing a game, watching a movie,
or listening to music. Players can find out locations of enemies in advance by recognizing the
sounds. The exclusive controller enables easy adjustment of the headset, volume of the
microphone, or shift to the 7.1 surround sound in real time. The outstanding ergonomic telescopic
microphone has the unprecedented stainless steel core and the structure features appropriate
weight distribution and clamping force. The removable earmuffs ensure a sense of comfort to a
varied extent for the players. It supports RGB Mystic Light. Through the exclusive Mystic Light
software, players can produce their favorite color effects to create exclusive stunning Gaming
lighting performance.
�
All multi-media peripherals of professional Gaming can be adjusted and set in a more detailed way
through the exclusive MSI Gaming software - MSI Gaming Center. For MSI Gaming lovers, all
peripheral hardware can be conveniently managed through the same program. The RGB light
design enables players to produce their favorite light color effects through the Mystic Light
software and to create their own stunning Gaming mouse.
�
Exclusive MSI Gaming software – The self-defining setup of the MSI Gaming Center is divided into
different functional categories, including the mouse, keyboard, multi-media, profile, performance,
and macro. Players can set the macro key or self-defined press button in order to increase the
maneuverability of Gaming equipment. It is suitable for players that wish to type out complex
commands in a fast combat and begin a worry-free combat experience at full speed.
C. Servers

�	The support is updated to the new-generation Intel® platform (Mehlow) workstation.
�	The new-generation IoT multi-purpose facial recognition gateway is developed.
�	The multi-functional IoT boundary server is developed.
D.	Desktop computers
�	Products of the desktop Gaming series of the latest Intel® 300 series of platform (Coffee Lake) are
	developed; these latest products available for consumers are unprecedented in the industry.
�	Products of the Cubi N mini-computer series of the latest Intel® Gemini Lake series of platform are
	developed; they combine the fan-less technology to provide consumers with optimal user
	experience and to effectively extend the life of these products.
�	Development of the latest All in One PC for the Intel® platform continued. The main parts of the
	products are trendy in terms of its elegant and super-thin frame-less design. These products are
	the most aesthetic decorators in offices. They are suitable for application in commercial offices
	and for general consumers as well.
�	Development of the proprietary Silent Storm cooling module technology for high-level Gaming
	desktop units continued.
�	Gaming desktop units that can reduce the operating noise of the machine are developed. The
	unprecedented and exclusive adoption of the anechoic chamber-grade sound-absorbing cotton in
	the industry enables consumers to have the optimal gaming user experience.
�	Development of the Gaming design required for LAN Party players continued.
�	The technology that integrates in depth with the Gaming monitor - Gaming OSD APP is developed.
	With the optimized desktop unit and the screen integrating experience, players only need the
	keyboard and the mouse through the Gaming OSD app and can easily control the screen setup; it
	supports the hot key feature so that players can shift among different gaming settings and
	start/shut down the gaming feature.
E. Industrial computers

�	The highly expandable and robust fan-less system is researched and developed. The integration
	ability is higher and it effectively addresses cooling issues.
�	The full-size Mini-PCIe interface expansion card with multiple Power USB features is developed to
	address the needs of different products and to accommodate a flexible upgrade.
�	The HDMI 2.0 high-resolution image and the SPDIF digital sound effects are integrated to add to
	the value of an audio-visual digital electronic bulletin board system.
�	The low power consumption and low profile are further developed with 2 LVDS dual-output high
	performance industrial products.
�	Industrial M12 connector waterproof and dust-proof high-performance systems are developed to
	address the user demand on the outdoor application market.
�	The one unit to simultaneously support 2M.2 and 2 Mini-PCIe interfaces is unprecedented to
	further upgrade flexible options.
�	The user-friendly operation is upgraded with reinforced Easy Maintenance and the mechanism
	designed for the maintenance.
�	The changeable-structured products with an expandable I/O module motherboard integrated with
	the system is researched and developed to effectively address the demand on the diversified
	application market for a versatile unit.
�	The fan-less diversified expandable assembly application system is researched, developed, and
	introduced.
�	The broad temperature small IoT fan-less embedded system is researched, developed, and
	introduced.
�	The built-in PoE and CAN Bus interfacing inside the embedded system is researched, developed,
	and introduced.
�	The Coffee Lake high-performance CPU module is researched, developed, and introduced.
F. Telematics
�	The telematics system is combined with peripherals such as Radio and the advanced auxiliary
	drivingsystem toprovide customers with a FMS solution.

�
The MOD solution, to meet the requirements for trains in India, was modified in design so that it
meets the EN50155 railway standards.
�
The more economical MOD solution was successfully developed under the WiFi streaming
solution, with wireless to replace physical wires and addition of optimized streaming technology
so that users can watch multi-media while at the same time enjoying satisfying experience and
quality.
�
The MCA solution combines the idea of low-cost sightseeing buses to add to the value of
sightseeing guided tours and commercial advertisements.
G. Laptops
�
MSI has been in the Gaming laptop industry for more than 10 years. The Company continues to
keep track of the needs of the even wider and more diversified base of Gaming players by learning
from the experiences and technologies shared in professional Gaming social media, increasing its
strategic planning with regard to Gaming products, and through sponsorship from a variety of
Gaming brands so that we can continue to expand the leading brand publicity and market
presence we have on the market for Gaming laptops.
�
MSI's laptops are the first to optimize virtual reality systems. The proprietary 1st VR Ready, VR
Boost, and VR Mode provide the optimal operation system for virtual reality so that players have
the best VR experience.
�
The 7th-generation Intel® processor platform full-line Gaming laptops are the first of its kind on
the market.
�
The full-line introduction of Gaming laptops with the nVidia® GTX 10 series of drawing cards is
unprecedented. Multiple overclocking and automatic/manual temperature control features
designed to meet the needs of players are added. Meanwhile, additional series with outstanding
performance which are super light and thin and meant to address the needs of consumers for
different price ranges are planned so that consumers can choose from a variety of laptops one that
best suits their needs.
�
MSI sets the benchmark for virtual reality, with its innovative novel back-carried computer VR One
(VR backpack). This unprecedented VR equipment in the industry enables consumers to move
around freely and explore. VR One enhances the virtual reality experience so that consumers are
not restricted because of wired interference and can comfortably experience in the same
environment or scenario with a single user or multiple users at the same time. In addition, VR One
has become the optimal development and test platform for VR developers of various types of
games, entertainment, medical care, automobiles, retail sales, and education.
�
Collaboration with the top gaming brand Steel Series® continued in order to constantly enhance
Gaming exclusive keyboards and optimize macro software. The single-key multi-color Gaming
laptop keyboard design is introduced so that users can adjust the color of each key and the
dynamic display approach on their own and can combine them in games so that the exclusive
player keyboard is able to become part of the gaming scenario and different back-light display
effects are possible.
�
Drawing laptop marketing and product position planning continued to be reinforced. There are
premium high-end and medium-end products. Along with product design and high-performance
specialized drawing display card, professional drawing laptops that are more professional,
efficient, and portable are created for drawing and charting workers.
�
In the promotion and application of high-speed screens, MSI is the first Gaming brand to introduce
and use extensively Gaming screens. Players are entitled to ultra-high-speed Gaming screens that
are free of delay and after images. Along with the brightest red and blue tones of the same grade
and the ultra-broad spectrum as well as the exclusive True Color to verify 6 major colors used,
optimal visual effects to suit various types of applications are made possible.
�
In terms of sound effects, collaboration with high-end speaker manufacturers continued and
products with the largest built-in sound box, the most powerful speaker volume, and the most
exquisite sound quality are designed. They can generate more surprising sound levels and quality
in an even smaller volume, which is unparalleled among products of the same grade. The Hi-Res
Audio headset amplifier feature is available in multiple series as well. The sound experience of MSI
Gaming laptops has become a benchmark in the industry.
�
The referral rate and user recognition of Micro-Star’s laptops reached new heights and continue to

be the best-preferred laptop brand among Gaming lovers. They are no longer just the No. 1 choice in the hearts of professional Gaming players on the market but also climbing in rating among various types of high-performance users. The best user experience rating and sales keep rising!

H. Displays
Curved Gaming screens are developed. The whole series meets the needs of Gaming players.
High-end players are valued and high-end Gaming screens to meet the demand of high-level players are developed.
The technology that integrates in depth with the Gaming host - Gaming OSD APP is developed.

4.Short-term and long-term development plan

(1)Short-term development plan N

Brand marketing: Cultivation and management of distribution channels continued and MSI expects itself to become the No. 1 choice of Gaming products. Self-brands are being expanded. The overall steady growths in various types of products such as laptops, desktop computers, motherboards, display cards, industrial computers, servers, automobile electronics, among others are the primary development focus in current-stage business marketing.

OEM: The Company works closely with international heavyweights in order to find out profitable commercial models. The economics of scale approach is adopted to continue bring down the production cost and to enhance the overall profits for the customers and the company.

Research and development, manufacturing, and service: From research and development of products to manufacturing, and mass production, customers are provided with high-quality products and after-sales services.

(2)Long-term development plan N

The Company builds on its solid R&D capabilities and has been well received among customers and users with its outstanding quality of products and optimal services. In the future, it will continue to be devoted to creating instant competitive advantages for its core capabilities and seeking opportunities to diversify its operations. Besides motherboards, display cards, laptops, servers, and desktop computers that it specializes in, it will also work hard to gradually become a profitable leader in other products such as industrial computers and automobile electronics.

( H ) Market Analysis and The Conditions of Sales and Production:

1. Market Analysis

(1)Sales Regions:

Unit: NT$ thousands

	Year	2017	2017	2016	2016
Sales Region		Net Sales	%	Net Sales	%
Export sales	Europe	31,205,584	29.3	29,009,332	28.4
	Asia	45,529,098	42.8	47,079,726	46.1
	America	24,797,274	23.3	21,601,508	21.1
	Others	1,942,280	1.8	2,029,784	2.0
Subtotal		103,474,236	97.2	99,720,350	97.6
Domestic sales		2,945,669	2.8	2,470,153	2.4
Total		106,419,905	100.0	102,190,503	100.0

(2) Market share and market demand and supply and market growth
A. Market Share

The Company is one of the heavyweight PC manufacturers in the world, with product lines including motherboards, display cards, desktop computers, laptops, and other commercial products. Because of its continuous devotion to increasing investment in research and development and brand management and focus on high-end markets with high gross profits such as that for Gaming, the Company is able to secure a steady leading position in terms of the sales and market shares of laptops and display cards. The motherboards, on the other hand, remain steady as one of the Top 3 on the market.

B. Supply

PCs are a mature sector. With respective suppliers paying increased attention to the market for high-end Gaming, competition is turning more and more fierce as well. Estimated by the survey and investigation institute IDC, the global NB shipment in 2018 is expected to consist of around 160 million units, a decline of nearly 1%. As far as desktop computers are concerned, on the other hand, the shipment in 2017 consists of nearly 100 million units, a decline of 5% and a 3% decline is expected for 2018 as well. On emerging markets,

however, business opportunities keep growing for Gaming. Multiple brands continue to invest in the research and development as well as marketing of Gaming-related products. Despite the competition, the Company will continue listening to the users in order to know their needs and will create products that meet users’ needs with its professional R&D capabilities and production technology so as to become the No. 1 high-end brand referred by users.

C. Demand

Statistics of the International Monetary Fund (IMF) showed a slight growth in global economy of 2017, with an economic growth rate of 3.7% and it is expected that advanced and developing countries will steadily grow in 2018 as well, with the estimated global economic growth rate being 3.9% and it has driven the substantial purchasing power. In addition, on the PC market, the Gamingg sector keeps growing. Meanwhile, thanks to the rise of numerous live broadcasting platforms, the viewer population for Gaming games has shown significant growths as well, which accordingly triggers the devotion of more game broadcasters, too. In other words, supported by the major demand for gaming and live broadcasts, the capability of an ordinary low-price computer is longer sufficient to satisfy the needs of players in pursuit of high efficacy. With the pursuit of efficacy, it also directly increases the needs of players for medium to-high-end personal computers, motherboards, and display cards. The significant growth in gaming revenue for nVidia in 2017 also shows the shift in the demand for personal computers toward the medium-to-high end.

D. Competitive niche and advantageous and disadvantageous factors for future developments as well as response measures
① Competitive niche and advantageous factors for future developments
a. Outstanding product development capabilities
The Company has a management team with more than 20 years of experiences in research and development and technical experiences. The members are heads of respective business groups and supervisors at the main office. As such, they have a deep understanding of promising technologies and are efficient in making decisions. Meanwhile, they can combine numerous technical trends to make the best of teamwork. Research and development staff, on the other hand, are highly experienced professionals; they contribute to the outstanding R&D accomplishments of the Company and the award-winning stream of its products over the past years. The excellent rating with regard to its performance by professional media and user referral on respective major markets are the best proof.
b. Productivity featuring high quality and flexibility
From design, development, to mass production, the Company is known for its quality mass production technology and highly efficient productivity. Meanwhile, the Company constantly introduces and updates automatic and smart equipment in order to improve production quality and to bring down the cost. In addition, the Company has a systematic management process and complete educational training programs for operators so that the product yield rate exceeds 99%, which contributes significantly to both improved quality and product image.
c. Outstanding management capability
Information technology products are known for their short life cycle and fast changing prices. Potential competitors do not necessarily come from the same sector. In response to the quick changes in competition on the market, the Company pays attention to market dynamics at all times in order to respond quickly and to reduce the inventory stress. Risk management is concerned, the Company adheres to its credit policy for the security of outstanding accounts recevibable to keep the actual bad debt amount low. Therefore, its management capability demonstrated through both its management of the inventory and accounts receivable is highly recognized.
d. Sound management system and outstanding product quality The Company is certified by ISO9001 Quality Management Systems, ISO14001 Environmental Management Systems, OHSAS18001 Occupational Health and Safety Assessment Series, IECQ QC 080000 Hazardous Substance Process Management System Requirements, TS16949 Automotive Quality Management System, and TL 9000 Telecommunications Quality Management System. Order processing, material preparation, production control, field management, shipment and environmental protection, safety and health, risk management, and quality assurance are all included as part of standard and specification management. Engineering staff for research and development and manufacturing, among others, are also constantly devoted to the improvement of reasonable and automatic processes and reducing impacts on the environment as well as investigating alternative materials in order to improve the yield rate while at the same time bringing down the cost.

  - e. Pursuit of satisfying services for customers

  - Customers have increased demand for technical support and after-sales service. In order to increase customer satisfaction, the Company has after-sales service centers and online customer service available on major markets so that real-time assistance can be provided to customers and customers are entitled to convenient and quick services and technical support. The Company can also quickly keep track of market and user dynamics and investigate customer satisfaction to be the basis for quality advancement.

  - f. Flourishing developments of the Gaming and gaming sectors

  - Statistics of the market survey institute Newzoo show that Gaming games are growing at a two-digit rate each year. The production value of global Gaming games in 2017 totaled around USD 690 million and it is expected to reach USD 910 million in 2018. Digi Capital also estimates that the income from hardware and software in the global gaming industry will reach USD 230 billion by 2022. Governments around the world are paying increased attention to the Gaming industry and recognition of the industry in society is on the rise, too. There are large Gaming games organized and broadcast both domestically and internationally. The market for the Gaming industry is constantly expanding. The enormous business opportunities deriving from Gaming are a focus of the Company’s products.

  - ② Disadvantageous factors for future developments

  - a. Short life span of information technology products. Spearheaded by main suppliers that have an effect on product development, downstream manufacturers can only follow market trends or the footsteps of international heavyweights in producing homogeneous products, which tends to result in price cut competition on the market and the difficulty to maintain reasonable profits. Many manufacturers in the industry try to secure their market share by reducing their prices, which, however, also squeezes the room for profitability.

  - b. Sectors accounting for a higher ratio in exportation is more easily affected by the volatility of exchange rate. Drastic changes in the exchange rate will affect their profitability.

  - ③ Countermeasures

  - a. Reinforced collaboration with key part suppliers in the upstream to develop competitive new products early on; devotion to R&D to help improve product efficacy and create high value-added and touching products for strengthened brand value and for creating reasonable profits for the Company; maintaining sufficient throughput to be capable of accepting ODM/OEM orders from international heavyweight clients and to improve income; and introduction of automatic and smart manufacturing to deal with diversification of products in small quantities and to more flexibly meet customers’ demand by adjusting the production lines.

  - b. Increased ratio of paying in foreign currencies to bring up the natural hedging ratio to counterbalance assets and liabilities in foreign currencies and continued adoption of hedging measures such as foreign exchange hedging transactions to reduce risks associated with the volatility in exchange rate along with close attention paid to impacts of various policies of major countries, including tax reform and balance sheet reduction in the US and the changes in regional political and economic situations as a result of emerging trade protectionism and cautious response to impacts caused by capital flows in Asian and Central American countries, global exchange rates, and financial credit.

Important purposes and production/preparation processes of primary products
(1) Purposes of main products

The Company mainly manufactures and sells computers, motherboards, and interface cards. Motherboards are important components of computers that are responsible for output and input features, including sending images, controlling the network, sound effects, and other multi-media features; they are indispensable for computers.

omputers.
Name of product	Purpose
Motherboard	Important component of personal computers, taking care of internal computing, output, and input features of a computer system, the backbone of a computer
Laptop	Mobile personal computer
Interface card	Combined with the motherboard to become a compute computer hardware system

(2) Production processes

==> picture [482 x 147] intentionally omitted <==

3. Supply of Major Raw Materials:

Major Products	Major Raw Materials	Suppliers	Supply Status
Motherboard	Integrated Circuit	B	Stable supply available
		C	Stable supply available
	Printed Circuit Board	Global Brands Manufacture Ltd.	Stable supply available
		APCB Electronics (S.Z.)co., Ltd.	Stable supply available

Note: Due to confidential business information and nondisclosure agreement concerns, some real vendors’ names are substituted with codes.

Major Customers with over 10% Net Sales and Suppliers with over 10% total Purchases of the Last Two Fiscal Years: (1) Purchases

Major Suppliers of the Last Two Fiscal Years

4. Major Customers with over 10% Net Sales and Suppliers with over 10% total Purchases of the Last Two Fiscal Years: (1) Purchases Major Suppliers of the Last Two Fiscal Years	4. Major Customers with over 10% Net Sales and Suppliers with over 10% total Purchases of the Last Two Fiscal Years: (1) Purchases Major Suppliers of the Last Two Fiscal Years	4. Major Customers with over 10% Net Sales and Suppliers with over 10% total Purchases of the Last Two Fiscal Years: (1) Purchases Major Suppliers of the Last Two Fiscal Years	4. Major Customers with over 10% Net Sales and Suppliers with over 10% total Purchases of the Last Two Fiscal Years: (1) Purchases Major Suppliers of the Last Two Fiscal Years	4. Major Customers with over 10% Net Sales and Suppliers with over 10% total Purchases of the Last Two Fiscal Years: (1) Purchases Major Suppliers of the Last Two Fiscal Years	4. Major Customers with over 10% Net Sales and Suppliers with over 10% total Purchases of the Last Two Fiscal Years: (1) Purchases Major Suppliers of the Last Two Fiscal Years	4. Major Customers with over 10% Net Sales and Suppliers with over 10% total Purchases of the Last Two Fiscal Years: (1) Purchases Major Suppliers of the Last Two Fiscal Years	4. Major Customers with over 10% Net Sales and Suppliers with over 10% total Purchases of the Last Two Fiscal Years: (1) Purchases Major Suppliers of the Last Two Fiscal Years	4. Major Customers with over 10% Net Sales and Suppliers with over 10% total Purchases of the Last Two Fiscal Years: (1) Purchases Major Suppliers of the Last Two Fiscal Years	4. Major Customers with over 10% Net Sales and Suppliers with over 10% total Purchases of the Last Two Fiscal Years: (1) Purchases Major Suppliers of the Last Two Fiscal Years	4. Major Customers with over 10% Net Sales and Suppliers with over 10% total Purchases of the Last Two Fiscal Years: (1) Purchases Major Suppliers of the Last Two Fiscal Years	4. Major Customers with over 10% Net Sales and Suppliers with over 10% total Purchases of the Last Two Fiscal Years: (1) Purchases Major Suppliers of the Last Two Fiscal Years	4. Major Customers with over 10% Net Sales and Suppliers with over 10% total Purchases of the Last Two Fiscal Years: (1) Purchases Major Suppliers of the Last Two Fiscal Years
Unit: NT$thousands
Year	2017				2016				2018Q1
Item	Name	Amount	Percentage of net annual purchase %	Relation with issuer	Name	Amount	Percentage of net annual purchase %	Relation with issuer	Name	Amount	Percentage of net purchase of Q1 %	Relation with issuer
1	B	20,947,946	23.84	None	B	17,527,699	20.66	None	B	6,789,796	26.73	None
	Others	66,931,982	76.16		Others	67,303,170	79.34		Others	18,609,655	73.27
	Net purchase amount	87,879,928	100.00		Net purchase amount	84,830,869	100.00		Net purchase amount	25,399,451	100.00

Note1: Due to confidential business information and nondisclosure agreement concerns, some real vendors’ names are substituted with codes. Note2: Causes of increase and decrease Supply chain diversification.

(2) Sales: Not Applicable.

5. Production Quantities and Values of the Last Two Fiscal Years:

Unit: 1000 pieces; NT$ thousands

				Unit: 1000 pieces; NT$ thousands	Unit: 1000 pieces; NT$ thousands	Unit: 1000 pieces; NT$ thousands
Year Product	2017			2016
	Capacity	Output	Amount	Capacity	Output	Amount
Computer andperipherals	47,632	25,654	85,705,873	36,169	28,042	79,593,569

6. Sales Quantities and Values of the Last Two Fiscal Years:

Unit: 1000 pieces; NT$ thousands

					Unit: 1000 pieces; NT$ thousands	Unit: 1000 pieces; NT$ thousands	Unit: 1000 pieces; NT$ thousands	Unit: 1000 pieces; NT$ thousands
Year Product	2017				2016
	Domestic Sales		Export Sales		Domestic Sales		Export Sales
	QTY	Amount	QTY	Amount	QTY	Amount	QTY	Amount
Computer andperipherals	409	2,945,669	20,771	103,474,236	343	2,470,153	23,561	99,720,350

( R )Employees

Status of employees over the past two years and up to the date of the report printed

Item	Year	2017	2016	As of May3,2018
Employee	Sales & Management	925	919	934
	Technician	1,401	1,403	1,386
	Total	2,326	2,322	2,320
Average age(years)		37.18	36.62	37.42
Average years of service(years)		8.01	7.41	8.28
Education (%)	Ph.D	0.17	0.17	0.17
	Masters	22.53	22.16	22.54
	College/University	74.38	74.41	74.36
	Senior High School	2.68	3.02	2.69
	Junior High School and below	0.24	0.24	0.24
	Total	100.00	100.00	100.00

( S )Environmental expenditures information

We are not in the high energy consumption or high pollution industries and related operations are mainly based on assembly and administrative.

1.The total value of losses or dispositions borne due to polluting the environment, the countermeasures, and possible expenditure in the most recent year and up to the date the Annual Report was printed: None.
The management performance of the green products:
(1)None of MSI's products has violated environmental laws. Therefore, MSI has not been punished, fined or sanctioned. No recalls were implemented and no customer complaints were received.
(2)None of MSI's products has violated eco-labeling regulations.
(3)MSI has not violated any international standards for hazardous substances in packaging materials.
(4)The company completed hazardous substance legal compliance assessment and other assessments required by customers in a total of 22 cases.
(5)MSI added 2 substances to the list of banned/restricted substance and amended 2 substance control standards.
(6)MSI completed component qualification management for 120,860 parts/components.
3.Environmental Management Performance:
The MSI operating activities are based on compliance with environmental laws T continuous improvement of processes T work environment and equipment to reduce pollutant emissions T energy consumption and safety and health risks. Each environmental performance has a dedicated unit responsible for management and regular monitoring. The following will describe the status of various environmental performances during the reporting period. (1)We have passed the certifications of ISO 14001 T IECQ/QC 080000 and get the ISO 14072 statement.
(2)We also implement GHG inventory each year in accordance with ISO14064-1 & 2.
(3)MSI did not transport any wastes derived from business activities across borders. It was also not reported for serious incidents of hazardous substance leakage nor had fines imposed for violation of environmental protection laws.
(4)The test results of all MSI operation sites fully complied with local regulations. No incidents of serious leakage were reported and no impact to the local environment and wildlife habitats related to MSI's operations was found.
Greenhouse Gas Management:
(1)Climate change poses serious threats that we must face at the very moment, and global warming and extreme weather are reminding us to expedite our actions. In response, MSI has been actively pushing forward greenhouse gas inventory checks so that we can keep the sources of emission and the severity of impact in control. We have

also continuously reviewed our actions and proposed solutions and targets to reduce emission of greenhouse gases so as to mitigate their impact on the environment.

(2)MSI is committed to managing carbon emission and greenhouse gas emission. We pledge to achieve the following before 2025:
- A.50% reduction in greenhouse gas emissions (2007 base).
(3)Greenhouse Gas Emission of the reporting period(2017) : 69,557.12 tons.
The electricity saving measures management:
Since the Company deals mainly with factory assemblies and office R&D processes, there are no highly energy-consuming operations at all. Water and electricity account for the majority of our consumption. As such, we are promoting water conservation, electricity saving, and improved power efficiency as part of our energy-saving efforts. Related measures are described below:
(1) Opening hours of boilers in the factory regulated living areas: Hot water usage is controlled by the IC card to reduce the use of fuels.
(2) Use of the air-compressor residual heat recycle system: Heat generated by the air compressor is recycled and re-heated to reduce the use of fuels.
(3) Air-cooling efficiency regulation: Based on the timely feedback from employees and by means of regular inspections, hot spots for air-conditioning and areas with relatively few people go through proper temperature regulation to reduce the use of electricity resources.
(4)Zoned electricity consumption control: Electricity meters are installed in respective segments of production lines throughout the factory to control the electricity consumed for air-conditioning, lighting, and power. This is also enforced for the public cold-water machine room and nitrogen air compressor machine room.
(5) Lighting modification: Office spaces of Micro-Star have all been switched to use LED lights, which does not only increase the required lighting intensity in workplaces but also is more effective in terms of energy-saving.
Waste Electrical and Electronic Equipment Management:
(1)EU zone: entered into recycling system or undertaken waste product recycling plans according to EU's Waste Electrical and Electronic Equipment (WEEE) Directive and legal requirements in various EU nations. Products sold in EU zones should be entered into local recycling systems, and products need to be labeled with WEEE recycle bin to clearly ensure that we are in full compliance with WEEE Directive's regulations.
(2)Taiwan: recycling process of waste IT products is primarily handled by the Environmental Protection Administration (EPA) in Taiwan. The Company pays fees pertaining to recycle processing according to regulations for imported products, and these fees will be used toward recycling, issuing subsidies, audit approval for quantities processed, management of recycling firms, and administration duties by the EPA.
(3) Other zones: the Company undertakes relevant procedures and registers at qualified recycling systems according to local governmental requirements at different regions.
Corporate environmental protection expenditure and investments in 2017 are described as follows:

Item	Amount (NTD)	The goal and benefits
The total expenditure on environmental protection	19,074,414	Ensure that the company can meet the environmental relevant regulations and reducing the possibility of environmentalpollution.
The total amount of investments in environmental protection	39,468,995	The company's environmental equipment operation and maintenance cost ensure that the equipment is working properly.

(V) Employer-employee relations

The various employee benefits, continuing education, training, retirement system available at the Company and their implementation and the agreement between the employer and employees as well as protection of the various rights of employees
(1)Employee benefits:

The Company believes in sharing its operational accomplishments with its employees. We have the Employee Welfare Committee in place and we plan benefits for employees according to the Employee Welfare Guidelines so that our employees have a steady life and their rights are protected. The various benefits we offer to employees include group insurance, birthday giftfund, child birth and wedding giftfund, funeral and illness consolationfund, gifts (vouchers) on Labor Day and Mid-autumn Festival, arts and cultural events, society activities, periodic health examinations, travel subsidies, employee restaurants, cafeteria, dormitory, subsidies for gatherings, library, medical assistance room, nursery room, outstanding performance reward, year-end bonus, employee rewards, and other preferred solutions from time to time.

(2) Employee health management:

The Company cares about the health of its employees. There are professional medical assistance rooms available on respective premises and health examinations are organized periodically in order to keep track of and care about employees with abnormal health conditions. During flue seasons, there are reminders for employees so that they reduce visiting public areas and pay closer attention to personal hygiene. The Company also reinforce cleaning and disinfection of office areas and pay for the French trivalent Pasteur flu vaccine that it arranges for staff to receive. If a rapid screen is determined by the physician that finds a positive flu result, the employee will be entitled to 3 consecutive days off on official leave so that he/she can stay home and get well soon.

(3)Employee Assistance Program (EAP) U

The Employee Assistance Project (EAP) was initiated on 1 November, 2011. By dialing 8585 (help me, help me in Taiwanese), employees can get help for the following issues: work stress, emotional problems, tax, legal affairs, medical care, and others. By combing internal and external services, EAP helps employees to solve related problems and release work stress and emotions to regain mental health, so that their family will not need to worry about their physical and mental condition.

(4)Employee Development:

Employee development is our focus. Given employees are indispensable from the future development of MSI; therefore, we begin with the selection, education, and retention of employees. As for employee education, we start from plan and implement internal and external training for employees. We have also established the Training and Education Management Regulations as the reference of continuing education and internal training of employees. Employees at MSI can receive continuing education and seek self-development through comprehensive learning channels and resources, such as internal training, external training, and expatriation.

A.Newcomer general education

Regularly held newcomer consensus trainings with contents including work rules, employees' rights and related channels, the introduction to the MSI management system, green product concept, and corporate laws, general education of hazardous substance, business continuity management, first-aid knowledge, introduction of infirmary, fire safety, labor safety and health education, IT Center, and other trainings with basic concepts and case studies of current events. The training ratio for newcomers is 100%.

B.MSI University

We began planning the MSI University (MSIU) in 2009 to cope with the highly competitive business environment in the electronics industry with talent cultivation. By improving the R&D and innovation capacity in key technology and with the improvement of managerial competency and efficiency, we aim to enhance MSI employees' competitiveness in the electronics industry.

V Leadership College

This is a complete set of courses on the leadership and management skills needed to become a supervisor. All supervisor-level employees are required to complete this set of courses. This series of courses aims to reinforce supervisors’ awareness and knowledge of the Company's internal system and operating procedures and provides supervisors the opportunities to learn leadership and management skills. The design of these courses allows supervisors to reinforce their weak areas and refresh the skills they have acquired and enables new supervisors to learn new skills quickly.

W Sales and Marketing College This series of courses include semi-annually skill development activities aimed at reinforcing the sales and management skills of overseas managers. A series of courses is also planned for sales executives overseas and at the head office to reinforce their abilities in market information surveying, selling and management, negotiation and marketing. These courses simulate actual market scenarios in Europe and the US, and cover product knowledge, surveying customer needs, and actual selling at different stages. They

focus on hands-on skills that can be directly applied to everyday operations.

X R & D College This series of courses focuses on helping our employees develop new visions and new thinking for innovative R&D, with the aim to reinforce abilities in innovative development and perspectives on new industrial trends, such as Industry 4.0, and develop abilities in R&D management, including market analysis and product planning, problem analysis and solving. At the same time, our internal R&D Technology Committee hosts R&D Managers’ Conference quarterly to enable sharing and discussion of technology resources and applications through a cross-division information exchange platform for new technologies
Y Technical Skills College Technical skills courses are designed to enable continuous development of manufacturing technology and mapping out of future directions.

2017	Educational training	Total	Headcount	Total hours
External training	Professional technical training	544,429	43	514
External training	Management skills training, professional training, general education	1,347,801	1107	5,940

(5)Pension plan:

The wage and pension system at MSI complies with local laws and regulations. The employee pension benefit plans are constituted precisely and apply to the length of service for all formal employees before the implementation of Labor Pension Act in July 1, in 2005. The plans are also applied to the seniority of those who choose to fall under the Labor Standards Act after the implementation of Labor Pension Act. In the name of Supervisory Committee of Business Entities Labor Retirement Reserve, retirement accounts are opened in Bank of Taiwan. In accordance with the old-age insurance system in the P.R.C., the MSIS and MSIK allocate pension premium for local workers based on a certain proportions of their payroll every month. The pensions of all staff would be made overall arrangements by the government. Please refer to page 134~138.

(6)Since MSI was first established, in addition to constructing a positive, fair work environment and planning comprehensive employee benefits, we have also established the "Work Protocols" as the basic set of behavioral guide for employees to comply with. This is to clearly state the rights and obligations of both that the employees and the management, as well as employee behavior and ethics. The content of which is as follows:
A. Employees should abide by the law and the Articles of Association and to abide by the supervision of their
supervisors.
B. Employees should not harm the good name and reputation of the Company, nor should employees use their
positions to receive gifts.
C. Employees shall not disclose the company's business, technical, and other confidential information.
D. Establish the standards of employee salaries, cash rewards, bonuses, retirement, leaves, and standards of incentives
and disincentives.
E. Sexual harassment prevention.
2.Losses borne due to employer-employee conflicts in the most recent year and up to the date the annual report was printed, possible estimated values at present and in the future, and countermeasures: There were no major employer-employee conflicts in the most recent year and up to the date the annual report was printed.

( Z ) Material Contracts

Important contracts that remained effective as of the date the annual report was printed and expired in the most recent

year on supply and distribution, technical collaboration, engineering projects, long-term loans and that are sufficient to

impact shareholders’ equities:

Nature of contract	Contracting Party	Term of Agreement	Main contents	Restrictions
Large authorization contract	Microsoft Licensing GP	2017.08.01~2018.07.31	OEM software licensing	Non-negotiable
Large authorization contract	Microsoft Corporation	2017.07.01~2018.06.30	China Partner Program Premium (“CPPP”) OEM Windows software licensing	Non-negotiable

[ . Financial Information

( \ ) Five-Year Financial Summary

1. Condensed Balance Sheet

(1) Condensed Balances Sheet (Consolidated)

		Unit: NT$thousands	Unit: NT$thousands	Unit: NT$thousands	Unit: NT$thousands	Unit: NT$thousands	Unit: NT$thousands
Year Item		Financial Summary for The Last Five Years(Note1)					As of March 31,2018 (Note2)
		2017	2016	2015	2014	2013
Current assets		43,185,288	44,556,225	40,285,522	39,750,040	35,459,063	46,617,696
Property,plant and equipment(Note3)		5,087,802	5,092,392	5,432,454	5,848,330	5,583,526	5,005,957
Intangible assets		-	-	-	-	-	0
Other assets		880,299	819,167	812,893	826,444	598,065	1,002,552
Total assets		49,153,389	50,467,784	46,530,869	46,424,814	41,640,654	52,626,205
Current liabilities	Before distribution	20,920,657	23,193,111	20,542,332	21,550,152	18,462,120	22,170,820
	After distribution	(Note4)	26,994,964	23,499,328	24,084,721	20,151,832	(Note4)
Non-current liabilities		429,462	384,175	246,520	342,126	240,948	427,166
Total liabilities	Before distribution	21,350,119	23,577,286	20,788,852	21,892,278	18,703,068	22,597,986
	After distribution	(Note4)	27,379,139	23,745,848	24,426,847	20,392,780	(Note4)
Equity attributable to shareholders of theparent		27,803,270	26,890,498	25,742,017	24,532,536	22,937,586	30,028,219
Share capital		8,448,562	8,448,562	8,448,562	8,448,562	8,448,562	8,448,562
Capital surplus	Before distribution	1,225,615	2,070,471	2,920,142	2,920,142	2,920,142	1,225,855
	After distribution	(Note4)	1,225,615	2,075,286	2,920,142	2,920,142	(Note4)
Retained earnings	Before distribution	18,550,908	16,601,625	13,843,360	12,692,518	11,378,736	20,658,128
	After distribution	(Note4)	13,644,628	11,731,220	10,157,949	9,689,024	(Note4)
Other equityinterest		(421,815)	(230,160)	529,953	471,314	190,146	(304,326)
Treasuryshares		-	-	-	-	-	0
Non-controllinginterests		-	-	-	-	-	0
Total equity	Before distribution	27,803,270	26,890,498	25,742,017	24,532,536	22,937,586	30,028,219
	After distribution	(Note4)	23,088,645	22,785,021	21,997,967	21,247,874	(Note4)

Note1: The above financial information for each year was audited by CPA.

Note2: 2018Q1 financial report was reviewed by CPA.

Note3: MSI did not carry out asset revaluation from 2013 to 2018Q1.

Note4: Subject to the approval of annual shareholders’ meeting 2018.

(2) Condensed Balance Sheet (Separate)

Unit: NT$ thousands

Year Item	Year Item	Financial Summary for The Last Five Years(Note1)	Financial Summary for The Last Five Years(Note1)	Financial Summary for The Last Five Years(Note1)	Financial Summary for The Last Five Years(Note1)	Financial Summary for The Last Five Years(Note1)
		2017	2016	2015	2014	2013
Current assets		41,279,986	42,260,743	38,064,588	37,135,495	32,154,215
Property, plant and equipment(Note2)		2,373,408	2,399,128	2,420,844	2,432,630	2,420,808
Intangible assets		-	-	-	-	-
Other assets		7,685,025	8,724,428	9,084,023	8,733,147	7,954,630
Total assets		51,338,419	53,384,299	49,569,455	48,301,272	42,529,653
Current liabilities	Before distribution	23,228,722	26,262,842	23,643,667	23,594,700	19,446,900
	After distribution	(Note3)	30,064,695	26,600,663	26,129,269	21,136,612
Non-current liabilities		306,427	230,959	183,771	174,036	145,167
Total liabilities	Before distribution	23,535,149	26,493,801	23,827,438	23,768,736	19,592,067
	After distribution	(Note3)	30,295,654	26,784,434	26,303,305	21,281,779
Equityattributable to shareholders of theparent		27,803,270	26,890,498	25,742,017	24,532,536	22,937,586
Share capital		8,448,562	8,448,562	8,448,562	8,448,562	8,448,562
Capital surplus	Before distribution	1,225,615	2,070,471	2,920,142	2,920,142	2,920,142
	After distribution	(Note3)	1,225,615	2,075,286	2,920,142	2,920,142
Retained earnings	Before distribution	18,550,908	16,601,625	13,843,360	12,692,518	11,378,736
	After distribution	(Note3)	13,644,628	11,731,220	10,157,949	9,689,024
Other equityinterest		(421,815)	(230,160)	529,953	471,314	190,146
Treasuryshares		-	-	-	-	-
Non-controllinginterests		-	-	-	-	-
Total equity	Before distribution	27,803,270	26,890,498	25,742,017	24,532,536	22,937,586
	After distribution	(Note3)	23,088,645	22,785,021	21,997,967	21,247,874

Note1 ] The above financial information for each year was audited by CPA. Note2 ] MSI did not carry out asset revaluation from 2013 to 2017. Note3 ] Subject to the approval of annual shareholders’ meeting 2018.

2. Condensed Statement of Comprehensive Income

(1) Condensed Statement of Comprehensive Income (Consolidated)

Unit: NT$ thousands

Year Item	Financial Summary for The Last Five Years(Note1)	Financial Summary for The Last Five Years(Note1)	Financial Summary for The Last Five Years(Note1)	Financial Summary for The Last Five Years(Note1)	Financial Summary for The Last Five Years(Note1)	As of March 31,2018(Note2)
	2017	2016	2015	2014	2013
Sales revenue	106,419,905	102,190,503	85,294,794	84,901,773	71,879,047	31,782,238
Netoperatingmargin	15,031,293	14,951,670	12,841,134	11,514,440	9,258,540	5,065,822
Operating profit	5,613,660	5,518,939	4,055,808	3,593,349	2,376,588	2,594,605
Non-opera^ngincome and expenses	364,892	303,233	211,235	(16,179)	353,715	25,862
Proftbeforeincometax	5,978,552	5,822,172	4,267,043	3,577,170	2,730,303	2,620,467
Income (Losses) from continuing operations for theyear	4,937,422	4,887,942	3,706,456	3,013,861	1,976,692	2,107,220
Lossesfromdiscontinued operations	-	-	-	-	-	-
Profit for the year	4,937,422	4,887,942	3,706,456	3,013,861	1,976,692	2,107,220
Other comprehensive income for the year (Net of incometax)	(222,797)	(777,650)	37,594	270,801	370,064	117,489
Total comprehensive income for theyear	4,714,625	4,110,292	3,744,050	3,284,662	2,346,756	2,224,709
Profit attributable to shareholders of the parent	4,937,422	4,887,942	3,706,456	3,013,861	1,972,857	2,107,220
Profit attributalbe to non-controllinginterests	-	-	-	-	3,835	-
Total comprehensive income attributable to shareholders of the parent	4,714,625	4,110,292	3,744,050	3,284,662	2,342,921	2,224,709
Total comprehensive income attributable to non-controllinginterests	-	-	-	-	3,835	-
Earnings pershare (NT$)	5.84	5.79	4.39	3.57	2.34	2.49

Note1: The above financial information for each year was audited by CPA. Note2: 2018Q1 financial report was reviewed by CPA.

Note3: MSI did not capitalize its annual interest expense from 2013 to 2018Q1.

(2) Condensed Statement of Comprehensive Income (Separate alone)

Unit: NT$ thousands

	Unit: NT$thousands	Unit: NT$thousands	Unit: NT$thousands	Unit: NT$thousands	Unit: NT$thousands
Year Item	Financial Summaryfor The Last Five Years(Note1)
	2017	2016	2015	2014	2013
Sales revenue	105,404,563	100,749,878	84,096,460	83,596,670	70,571,653
Net operating margin	13,374,882	13,342,413	11,324,106	10,083,017	7,673,423
Operating profit	5,302,969	5,191,871	3,809,214	3,285,667	1,772,766
Non-operatingincome and expenses	549,147	542,204	397,125	167,991	855,079
Profit beforeincome tax	5,852,116	5,734,075	4,206,339	3,453,658	2,627,845
Income (Losses) from continuting operations for theyear	4,937,422	4,887,942	3,706,456	3,013,861	1,972,857
Losses from discontinued operations	-	-	-	-	-
Profit for the year	4,937,422	4,887,942	3,706,456	3,013,861	1,972,857
Other comprehensive income for the year (Net of income tax)	(222,797)	(777,650)	37,594	270,801	370,064
Total Comprehensive income for theyear	4,714,625	4,110,292	3,744,050	3,284,662	2,342,921
Profit attributable to shareholders of theparent	4,937,422	4,887,942	3,706,456	3,013,861	1,972,857
Profit attributalbe to non-controllinginterests	-	-	-	-	-
Total comprehensive income attributable to shareholders of theparent	4,714,625	4,110,292	3,744,050	3,284,662	2,342,921
~~Total comprehensive income attributable to non-~~ controllinginterests	-	-	-	-	-
Earningsper share(NT$)	5.84	5.79	4.39	3.57	2.34

Note1: The above financial information for each year was audited by CPA. Note2: MSI did not capitalize its annual interest expense from 2013 to 2017.

3. Auditors’ Opinions from 2013 to 2017

Auditing Year	Accounting Firm	CPAs	Audit Opinion
2013	PricewaterhouseCoopers	Chou, Hsiao-Tzu Yeh,Tsui-Miao	Modified unqualified
2014	PricewaterhouseCoopers	Chou, Hsiao-Tzu Yeh,Tsui-Miao	Modified unqualified
2015	PricewaterhouseCoopers	Chou, Hsiao-Tzu Yeh,Tsui-Miao	Modified unqualified
2016	PricewaterhouseCoopers	Chou, Hsiao-Tzu Lai,Chung-Hsi	Unqualified opinion withother matters paragraphs
2017	PricewaterhouseCoopers	Liang, Hua-Ling Lai,Chung-Hsi	Unqualified opinion withother matters paragraphs

Note: Due to its internal personal changes, PricewaterhouseCoopers updated the audit partners for MSI in 2017.

( ^ ) Five-Year Financial Analysis

1. Financial Analysis for Consolidated Report

Financial Analysis for Consolidated Report

Item	Year	Financial Analysis in the past Five Years (Note1)	Financial Analysis in the past Five Years (Note1)	Financial Analysis in the past Five Years (Note1)	Financial Analysis in the past Five Years (Note1)	Financial Analysis in the past Five Years (Note1)	As of March 31,2018 (Note2)
		2017	2016	2015	2014	2013
Financial structure %	Ratio of liabilities to assets	43.44	46.72	44.68	47.16	44.92	42.94
	Ratio of long-term capital to property, plant and equipment	554.91	535.60	478.39	425.33	415.12	608.38
Solvency %	Current ratio	206.42	192.11	196.11	184.45	192.06	210.27
	Quick ratio	122.23	115.93	117.36	106.33	122.84	127.70
	Times interest earned	178,404.56	226,291.61	26,101.12	7,685.82	19,134.46	356,626.12
Operating performance	Accounts receivable turnover (times)	7.24	7.66	6.82	6.84	6.38	8.67
	Average collection period	50	48	54	53	57	42
	Inventory turnover (times)	5.45	5.42	4.64	5.31	5.66	6.41
	Accounts payable turnover (times)	5.36	5.10	4.63	5.05	5.01	6.51
	Average days in sales	67	67	79	69	64	57
	Property, plant and equipment turnover(times)	20.91	19.42	15.12	14.85	12.59	25.19
	Total assets turnover (times)	2.14	2.11	1.84	1.93	1.82	2.50
Profitability	Ratio of return on total assets (%)	9.92	10.08	8.00	6.93	5.04	16.57
	Ratio of return on equity (%)	18.05	18.57	14.74	12.70	8.89	29.15
	Ratio of Profit before tax to paid-in capital(%)	70.76	68.91	50.51	42.34	32.32	124.07
	Profit ratio (%)	4.64	4.78	4.35	3.55	2.75	6.63
	Earnings per share (NT$)	5.84	5.79	4.39	3.57	2.34	2.49
Cash flow	Cash flow ratio (%)	11.68	21.72	27.88	5.16	18.85	15.74
	Cash flow adequacy ratio (%)	83.34	94.93	-	-	-	93.90
	Cash reinvestment ratio (%)	(3.80)	5.97	9.23	(1.74)	10.21	9.17
Leverage	Operating leverage	1.73	1.76	2.05	1.98	2.44	1.45
	Financial leverage	1.00	1.00	1.00	1.01	1.01	1.00

Note1: The above financial information for each year was audited by CPA. Note2: 2018Q1 financial report was reviewed by CPA.

Analysis of financial ratio differences over 20% for the last two years:

Times interest earned	The interest expense in currentperiod increased,causingtimes interest earned to decrease.
Cash flow ratio	The net cash flow from operatingactivities thisyear decreased,causingthe decrease in cash flow ratio.
Cash reinvestment ratio	The net cash flow from operating activities this year decreased while the cash dividend increased, causing the decrease in cash reinvestment ratio.

2.Financial Analysis for separate report

	Financial Analysis for Stand Alone Report	Financial Analysis for Stand Alone Report	Financial Analysis for Stand Alone Report	Financial Analysis for Stand Alone Report	Financial Analysis for Stand Alone Report	Financial Analysis for Stand Alone Report
Item	Year	~~Financial Analysis in the past Five~~ Years(Note)
		2017	2016	2015	2014	2013
Financial structure %	Ratio of liabilities to assets	45.84	49.63	48.07	49.21	46.07
	Ratio of long-term capital to property, plant and equipment	1,184.36	1,130.47	1,070.94	1,015.63	953.51
Solvency %	Current ratio	177.71	160.91	160.99	157.39	165.34
	Quick ratio	102.11	94.49	94.28	87.25	100.51
	Times interest earned	796,306.26	731,487.12	35,981.08	64,945.25	505,454.81
Operating performance	Accounts receivable turnover (times)	7.03	7.31	6.46	6.57	6.10
	Average collection period	52	50	57	56	60
	Inventory turnover (times)	5.49	5.48	4.72	5.35	5.76
	Accounts payable turnover (times)	5.40	5.15	4.78	5.28	5.37
	Average days in sales	66	67	77	68	63
	Property, plant and equipment turnover (times)	44.17	41.81	34.65	34.45	29.03
	Total assets turnover (times)	2.01	1.96	1.72	1.84	1.75
Profitability	Ratio of return on total assets(%)	9.43	9.50	7.59	6.65	4.90
	Ratio of return on equity (%)	18.05	18.57	14.74	12.70	8.88
	Ratio of Profit before tax to paid-in capital (%)	69.27	67.87	49.79	40.88	31.10
	Profit ratio (%)	4.68	4.85	4.41	3.61	2.80
	Earnings per share (NT$)	5.84	5.79	4.39	3.57	2.34
Cash flow	Cash flow ratio (%)	4.05	15.42	25.57	(0.57)	13.72
	Cash flow adequacy ratio (%)	69.60	84.70	-	-	-
	Cash reinvestment ratio (%)	(9.91)	3.93	13.12	(7.14)	10.06
Leverage	Operating leverage	1.62	1.65	1.90	1.83	2.40
	Financial leverage	1.00	1.00	1.00	1.00	1.00

Note: The above financial information for each year was audited by CPA.

Analysis of financial ratio differences over 20% for the last two years:

Cash flow ratio	The net cash flow from operating activities this year decreased, causing the decrease in cash flow ratio.
Cash reinvestment ratio	The net cash flow from operating activities this year decreased while the cash dividend increased, causingthe decrease in cash reinvestment ratio.

Glossary:

1. Financial structure

(1) Ratio of liabilities to assets = Total liabilities / Total assets

(2) Ratio of long-term capital to property, plant, and equipment = (Total equity +Non-current liabilities) / Net property, plant, and equipment

2. Solvency

(1) Current ratio = Current assets / Current liabilities

(2) Quick ratio = (Current assets- Inventory-Prepaid expenses) / Current liabilities

(3) Times interest earned = Net income before tax and interest expense/ Interest expense of the year

3. Operating ability

(1) Accounts receivable turnover (including accounts receivable and notes receivable derived from business operation) = Net sales / Average accounts receivable (including accounts receivable and notes receivable derived from business operation).

(2) Average collection period = 365 / Accounts receivable turnover

(3) Inventory turnover = Cost of goods sold / Average inventory amount

(4) Accounts payable turnover (including accounts payable and notes payable derived from business operation) = Cost of goods sold / Average accounts payable (including accounts payable and notes payable derived from business operation) (5) Average days in sales = 365 / Inventory turnover

(6) Property, plant, and equipment turnover = Net sales / Average net property, plant, and equipment

(7) Total assets turnover = Net sales / Average total assets

4. Profitability

(1) Ratio of return on total assets= [Net income (loss) + Interest expense x (1 - tax rate)] / Average total assets

(2) Ratio of return on Equity = Net income (loss) / Average total equity

(3) Profit ratio = Net income (loss) / Net sales

(4) Earnings per share = (Profit attributable to shareholders of the parent – preferred stock dividend) / Weighted average stock shares issued

5. Cash flow

(1) Cash flow ratio = Net cash flow from operating activity / Current liabilities

(2) Net cash flow adequacy ratio = Net cash flow from operating activity in the past five years / (Capital expenditure + Inventory increase + Cash dividend) in the past five years

(3) Cash reinvestment ratio = (Net cash flow from operating activity - Cash dividend) / (Gross property, plant, and equipment + Long-term investment + Other non-current assets + working capital)

6. Leverage

(1) Operating leverage = (Net Sales revenue – Variable operating cost and expense) / Operating profit

(2) Financial leverage = Operating profit / (Operating profit - interest expense)

( _ ) Supervisors’ /Audit Committee’s Report for the Most Recent Year Supervisors' review report of 2017.

Review report of the supervisors of Micro-Star International Co., Ltd.

The supervisors have reviewed the 2017 annual business reports, financial reports, and earnings distribution proposal prepared and presented by the Company’ s Board of Directors without any nonconformity identified; therefore, the Supervisors' report is hereby issued in accordance with Article 219 of the Company Act.

Micro-Star International Co., Ltd.

Supervisor: Hsu, Fen-Lan Hsu, Jun-Shyan May 3, 2018

( S )Financial statements in the most recent years : Please refer to page 97 ` 166

( a )State the financial position of the Company if any insolvency occurs in the Company or affiliates in the most recent year until the date this report is printed b None

c . Review of Financial Conditions, Financial Performance, and Risk Management

( \ ) Analysis of Financial Status

Comparison and Analysis of Financial Status

Unit: NT$ thousands

Year Item	2017	2016	Difference	Difference
			Amount	%
Current Assets	43,185,288	44,556,225	(1,370,937)	(3.08%)
Property, plant, and equipment	5,087,802	5,092,392	(4,590)	(0.09%)
Intangible assets	-	-	-	-
Other Assets	880,299	819,167	61,132	7.46%
Total Assets	49,153,389	50,467,784	(1,314,395)	(2.60%)
Current Liabilities	20,920,657	23,193,111	(2,272,454)	(9.80%)
Non-current liabilities	429,462	384,175	45,287	11.79%
Total Liabilities	21,350,119	23,577,286	(2,227,167)	(9.45%)
Equity attributable to shareholders of the parent	27,803,270	26,890,498	912,772	3.39%
Share capital	8,448,562	8,448,562	0	0.00%
Capital surplus	1,225,615	2,070,471	(844,856)	(40.81%)
Retained Earnings	18,550,908	16,601,625	1,949,283	11.74%
Other equity interest	(421,815)	(230,160)	(191,655)	(83.27%)
Treasury shares	-	-	-	-
Non-controlling interests	-	-	-	-
Total Equity	27,803,270	26,890,498	912,772	3.39%

(1) Analysis of significant changes in assets, liabilities and equity for the last two years: Capital surplus: The annual shareholders’ meeting 2017 approved cash dividend of NT$1 per share.

Other equity interest: Caused by decrease in exchange differences on translation of foreign financial statements in current period.

(2) Future plans for the major impact on financial position ] The above deviations were caused by general business operations, having

no major impact on MSI’s financial position.

( ^ ) Analysis of Financial Performance

Comparison and Analysis of Financial Performance

Unit: NT$ thousands

				Unit: NT$thousands
Year Item	2017	2016	Amount	%
Sales revenue	106,419,905	102,190,503	4,229,402	4.14%
Net operating margin	15,031,293	14,951,670	79,623	0.53%
Operating profit	5,613,660	5,518,939	94,721	1.72%
Non-operating income and expenses	364,892	303,233	61,659	20.33%
Profit before income tax	5,978,552	5,822,172	156,380	2.69%
Income (Losses) from continuting ~~operations~~	4,937,422	4,887,942	49,480	1.01%
Losses from discontinued operations	-	-	-	-
Profit for the year	4,937,422	4,887,942	49,480	1.01%
Other comprehensive income for the year ~~(Net of income tax)~~	(222,797)	(777,650)	554,853	71.35%
Total comprehensive income for the year	4,714,625	4,110,292	604,333	14.70%
Profit attributable to sharholders of the ~~parent~~	4,937,422	4,887,942	49,480	1.01%
Profit attributable to non-controlling ~~interests~~	-	-	-	0.00%
Total comprehensive income attributable to shareholders of the parent	4,714,625	4,110,292	604,333	14.70%
Total comprehensive income attributable ~~to Non-controlling interests~~	-	-	-	0.00%
Earnings per share	5.84	5.79	0.05	0.86%

Analysis of significant changes in sales revenue, operating profit, and profit before income tax for the last 2 years:
Non-operating income and expenses: caused by decrease in foreign exchange losses in current period. Other comprehensive income for the year: Caused by decrease in exchange differences on translation of foreign financial statements in current period.
2.Sales volume forecast and related information U

The 2018 shipment forecast for motherboards and graphic cards amounts to twenty-one million pieces.

3.Possible impact on financial performance and future plans U

Financial ratios in current period are better than the ones in the year before, having no disadvantage on future financial performance.

( _ )Analysis of Cash Flow

)Analysis of Cash Flow	)Analysis of Cash Flow	)Analysis of Cash Flow	)Analysis of Cash Flow
				Unit UNT$thousands
Beginning cash balance (A)	Net cash flow from operating activities (B)	Cash inflow(outflow) (C)	Cash surplus (deficit) (A)+(B)+(C)	Remedial measures for the expected insufficient cash
				Investment plan	Financing plan
12,267,586	2,444,247	(4,614,934)	10,096,899	-	-

Analysis of Cash flow change:
(1) Operating activities: cash inflow 2,444,247
(2) Investing activities: cash outflow 669,785

(3) Financing activities: cash outflow 3,756,156

(4) Exchange rate changes: cash outflow 188,993
Remedial actions for liquidity shortfall: Not Applicable.

Year Item	2017	2016	Variance
Cash flow ratio	11.68%	21.72%	(46.22%)
Cash flow adequacy ratio	83.34%	94.93%	(12.21%)
Cash reinvestment ratio	(3.8%)	5.97%	(163.65%)
Analysis of financial ratio change: The net cash flow from operating activities this year decreased while the cash dividend increased, causing the decrease in cash flow ratio.

3. Cash flow analysis for the coming year U

3. Cash flow analysis for the coming year U	3. Cash flow analysis for the coming year U	3. Cash flow analysis for the coming year U	3. Cash flow analysis for the coming year U	3. Cash flow analysis for the coming year U
					Unit UNT$ thousands
Beginning cash balance	Estimated net cash flow from operating activities		Estimated cash inflow(outflow)	Estimated Cash surplus (deficit)	Remedial measures for the expected insufficient cash
					Investment plan	Financing plan
10,096,899		6,000,000	(5,000,000)	11,096,899	-	-
(1) Analysis of cash flow change in current period: A. Operating activities: Cash inflow this year is expected to be due to profit and working capital changes. B. Investing and financing activities UCash outflow this year is expected to be due tothe issuance of cash dividend and equipments replacement. (2)Remedial actions for liquidityshortfall: Not Applicable.

( S ) Recent years major capital expenditures and impact on financial and business: None.

( d )Reinvestment in recent years b

1.The company's reinvestment policy for the most recent fiscal year U

The re-investment policy of the Company is meant mainly to explore overseas markets and provide

in-depth services in major countries so that the revenue and worldwide market shares can be increased.

2.The main reasons for the profits/losses generated thereby, the plan for improving re-investment

profitability: Income from reinvested businesses of the Company in 2017 totaled NT$383,462 thousand mainly due to the bettering global economy, increased consumer demand, growths in sales of overseas subsidiaries, and increased profits.

3.Investment plans for the coming year: Currently, no significant investment plans will be processed this year.

( Z )Risk analysis and evaluation in recent years and up to the date of the annual report printed

1.The impact of interest rate, exchange rate, and inflation on the Company’s income and expense and the responsive measures:
(1) Interest rate

The changing interest rate can impact the Company in two parts. As far as assets are concerned, income for the Company from cash and cash equivalents increases or decreases as the interest rate changes. For liabilities, expenditure on interest charged for short-term loans also increases or decreases as the interest rate changes. The impacts on the assets and liabilities from the changing interest rate as described above can be counterbalancing. If it is expected that the interest rate will significantly change, the Company can reduce its impact on the Company’s profits and losses by adjusting durations of deposits and borrowings or through interest rate swap.

(2) Exchange rate

Sales of the Company are mainly export-oriented. Among them, more than 80% are priced in USD. Among the materials purchased, also more than 90% are paid in USD. The natural hedging ratio is high. Plus the current exchange rate hedging that is adopted to reduce risks associated with the changing exchange rate, the impacts of changing exchange rate on the Company are not too huge. The Company will continue to reduce the impacts that the changing exchange rate has on profits and losses by undertaking hedging transactions.

(3) Inflation

Generally speaking, inflation affects the purchasing power and willingness of consumers and reduces the demand for consumer products; it will have a negative influence on the overall revenue and profits and losses of the Company. Impacts of inflation, however, are comprehensive; that is, not only individual companies are affected. In other words, the government financial departments shall stipulate related measures with macroeconomics in mind. Nevertheless, the Company will devoted to bringing down its production cost in order to keep its revenue by introducing products at a price that can better inspire consumers to buy and to accordingly reduce the negative impacts that inflation has on the Company's profits and losses.

2.Conducting high-risk and high-leverage investment, granting loans to others, endorsement & guarantee and directives policy, root cause of profit and loss, and the responsive measures:
The Company’s policy is not to undertake high-risk, high-leverage investments and not to lend funds to others or serve as endorser or guarantor. In terms of its policy on derivatives, it only engages itself in hedging transactions. The exchange rate hedging transactions the Company undertook in the most recent year accordingly reduced the impacts of the changing exchange rate on the Company’s profits and losses. In the future, such undertaking will keep going in order to reduce the impacts that the volatility in exchange rate on the Company's profitability.

3.R&D plans and budgeted R&D expense b

Products development planned in 2018

(1)Products development

A. Motherboards

Development of the latest AMD[®] platform AM4 series GAMING, PRO, and the latest and smallest platform motherboard.
� Development of the latest Intel® platform X599 series GAMING, PRO, and the latest and smallest platform motherboard.
� Development of the latest Intel® platform Z390 series GAMING, PRO, and the latest and smallest platform motherboard.
� Development of the motherboard exclusively for use on the cryptocurrency mining platform

B. Multi-media products

Development of more powerful and lower-energy consumption display cards and cooling modules.
Development of super band display cards that adopt high technology and materials.
Development of better heat sink performance and low-noise fans.
Development of display cards with enhanced RGB LED features and effect.
Continued optimization of display card support software, such as Afterburner, GAMING APP.
� Development of multi-display card bridge.
Development of more Gaming professional peripheral products.

C. Servers

Update of support to include the new-generation Intel® platform (Mehlow) work station.
Development of the new-generation IoT multi-purpose facial recognition gateway.
Development of the multi-functional IoT boundary server.
Development of the high-density integrated network threat management chassis system (6U/4U).
Development of the new-generation Intel® FPGA DDoS attack defense equipment.
Development of the new-generation Intel® platform (Mehlow) network intrusion prevention system (IPS).

D. Desktop computers

Development of products of the desktop Gaming series of the latest Intel® 300 series of platform (Coffee Lake).
Development of products of the Cubi N mini-computer series of the latest Intel® Gemini Lake series of platform.
Continued development of the one-piece computer products of the latest Intel® platform.
Continued development of the proprietary Silent Storm cooling module technology for high-level Gaming desktop units.
Development of Gaming desktop units capable of reducing the operating noise of the machine.
Development of the Gaming design required for LAN Party players continued.
Development of the technology that integrates in depth with the Gaming monitor - Gaming OSD APP.

E. Industrial computers

Further upgrading R&D capabilities to provide broad temperature broad pressure water-proof and dust-proof solutions that can be used in undesirable settings.
In-depth cultivation of highly expandable robust fan-less systems in response to Industry 4.0 to turn it smaller and further advance the cooling performance.
Continued development of flexible Mini-PCIe or PCI/PCIe interface cards to add to the value of products.
Offering the option of expanding the number of independent displays from 3 to 6 or 9 and development of higher-resolution imaging treatment to enhance the efficacy and to satisfy the needs of users on the high-end market.
Enhanced OCP/OVP and hardware design and protection mechanism in case of possible power issues

during harsh operations.

Compliance with regulations in different countries for safety of products to enhance the ESD design regulations.
Support of the application of EU IEC-60068-2 international shock regulations to railways and transportation.
Exchange and integration of IoT (Industrial Internet of Things) full-function system with real-time point-to-point data to plan and operate global smart application management.
Development of the Apollo Lake broad-temperature small low power-consumption CPU module product.
� Development of the broad temperature small IoT fan-less embedded system supporting railway regulations.
Development of a system that can support two sets of PoE and CAN Bus at the same time.
� Development of automobile embedded system supportive of broad temperature and broad pressure specifications.

F. Telematics

Private telematics solutions and augmentation of peripheral support equipment to increase the integrity of the solutions.
Car advertising is combined with the telecommunication feature and can be used for remotely publishing/editing/adjusting/and inserting advertisements in emergency; there is also GPS information to provide LBS-cored related value-added services.
Interception and analysis of OBDII signals and connecting them to the cloud management back office so that information may be explored and the produced information reports will help enhance the operating efficiency.
Large-size MOD as the sleeper bus solution to go with existing equipment; different connection methods are available so that additional value-added application combinations are possible on the existing market.
� Integration of LTE and WiFi to offer on the market a single product that has the external network and internal wireless connected multi-media audio-visual car server.

G. Laptops

Continued development of high-performance computer hardware for virtual reality, augmented reality, and mixed reality to lead on the market.
Continued optimization and gradual introduction of single-key multi-color Gaming keyboards suitable for players.
Continued reinforcement of the screen color correction True Color 2.0 technology to combine high quality screen hardware and optimized software color for an outstanding visual feast.
Reinforcement of R&D on the speaker sound effect design of Gaming laptops in order to improve the surround sound and the sound quality.
Reinforcement of the VR/MR/AR experiential physical surround sound effects with enhanced software sound effect to suit the various types of virtual reality developments and experiences so that players feel that they are physically on the scene.
Optimization of software applied to VR Ready so that players can experience the excellent fun brought about by VR games applying the highest efficacy and the most non-interrupted settings.
Reinforcement of integrative features for players to experience optimized hardware and software so that users can quickly execute their software application.
Further lightened high-performance laptop design to break through in the industry so that both the efficacy and the thinness are gaining the upper hand.
Continued devotion to the R&D of smart (AI) laptops besides integration and improvement of hardware and software to continue bringing advanced application in the PC industry to the next level.
H. Displays
Development of curved Gaming screen.
Development of Gaming display to meet the demand of high-level players.
The technology that integrates in depth with the Gaming host - Gaming OSD APP is developed.
(2) Progress of unaccomplished R&D plans: Product design and development stage.
(3) Current progress of R&D projects yet to be completed: The overall progress is about 20% to 80% at present, depending on respective products involved.
(4) Major factors that affect the future success of R&D U A. Market factor B. Delayed key parts and components C. Shortage of parts and components.
(5)R&D budget in 2017 b NT$3 billion

(6)Projection on mass production:2018 e 2019 f

4.The impact of domestic and international policies and law change on the Company’s finance and the responsive measures b None
5.The impact of technology change and industrial change on the Company’s finance and the responsive measures b None
6.The impact of industrial image change on business risk management and the responsive measures b None
7.The expected effect, potential risk, and responsive measures of merger b None
8.The expected effect, potential risk. and responsive measures of plant expansion b None
9.The risk relating to excessive concentration on procurement and customer b None
10.The impact of massive stock transfer or change by directors, supervisors, and shareholders with over 10% shareholding, the risk, and the responsive measures b None
11.The impact of right to operate change on the Company. The risk, and the responsive measures b None
12.Legal and non-legal events b
(1)As of the publication date of annual report, whether the directors, supervisors, President, and shareholders with shareholding ratio over ten percent of the Company are involved in any significant litigation, non-litigation or administrative litigation cases, such cases have been sentenced or are currently pending, and the results there of have a significant impact on shareholders’ equity or securities price b None
(2) Significant litigation, non-litigation or administrative litigation cases of the Company in the most recent years and up to the date, such cases that have been sentenced or are currently pending, and the results thereof that have a significant impact on shareholders’ equity or securities price b None
13.Other significant risks and responsive measure b
(1) Risk management policy: The Company’s policy towards risk management is to evaluate possible impacts of the various risk matters on the profits and losses of the Company and to stipulate respective response policies accordingly.

policies accordingly.
Risk assessment	Impacts on profits and losses	Countermeasure
1. Financial risk	The Company has an optimal financial structure; its debt ratio is 43% and net worth reaches 27.8 billion. Financial risk is hence not high.	Continue with the optimal financial structure in order to reduce financial risk
(1) Market risk (including exchange rate and interest rate)	Major products of the Company are sold to Europe, Asia, and America; they are not overly focused on a specific single market. Therefore, market risk is not high.	Continue to diversify areas of distribution in order to reduce market risk
(2 ) Credit risk	The primary credit risk of the Company comes from accounts receivable from its customers. Insurance has been purchased for the accounts receivable as safety measure to reduce such risk.	Continue to have accounts receivable covered by insurance as safety measure to reduce credit risk

	Therefore, credit risk is not high.
(3) Liquidity risk	The current ratio of the Company is up to 206%; the liquidity risk is not high.	Continue with the optimal current ratio in order to reduce liquidity risk
(4) For the nature and extent of significant financial risks, refer to Pages147 g151for details.
2. Legal risk - domestic laws and regulations	The Labor Standards Act was revised on December 21, 2016. (One fixed day off and one flexible rest day)	With the implementation of the new system under the Labor Standards Act, companies follow the Labor Standards Act while calculating the service hours, days available for leave, and overtime for their employees and calculation of overtime for working on days off is added to the revised Act. In addition, service on days off is under strict control in order to meet regulatory requirements.
3. Evaluation of strategic and operational risks	The Company successfully extended its scope of business from core products, such as computer motherboards, display cards, and laptops to servers and automobile electronics, among other diversified fields. As far as operation is concerned, as the management complexity increases, daily response mechanisms need to be developed for the evaluation of strategic and operational risks. In terms of management, the strategy is to extend core specialties and combine the many technologies researched and developed over the years and to keep track of demand on the market for the industry. The hope is to create another wave of growths for the Company and to bring about maximum benefits for the Company’s shareholders. In order for strategic goals to be precisely fulfilled, the Company	(1) Periodically review the growths in core sectors Set goals for growth, market share, and profitability that are higher than industrial averages (2) Set reasonable return on investment based on the careful evaluation in advance and the management plan for a new business and demand that profits and losses reach a balance within a given period of time. Set phased strategic goals reflective of the nature of the sector involved, such as obtaining purchase orders from prospective customers, timely mass production, and securing a certain market share on the strategic target market. (3) Related departments meet on a monthly basis to review the operational efficacy and examine and adjust the strategies on a quarterly basis; related organizational adjustment is made right away for unachievable ones in order to control risk.

	operates by connecting the value chain through its business departments and the functional main part when it comes to organization and operation. Annual goals are set according to the competition in the industry facing product business departments and managerial meetings are called for periodically to discuss the strategy and operational efficacy in order to adopt immediate countermeasures that help bring down operational risk.	(4) Keep timely track of daily operations around the world through the real-time information system, including shipment, stock, purchase order, operating fund, among others, and set the alert criteria. (5) Gather managers around the world periodically to discuss management strategies that concern where the Company will go next. High-raking management is to adjust strategies taking into consideration resources available throughout the Company and the operational status. In light of the rapidly changing operating environment for the high-tech industry, the Company proactively invests in information technology and the required talent internally and keeps track of changes in customers, products, and techniques externally. It will constantly review strategic and operational risks and adjust the Company resources in order to continue bringing about accomplishments and profits.

(2) Organizational structure of risk management

The Company has the “Continued Operational Management Procedure” in place to help reduce impacts and damages derived from emergency events facing the organization and to ensure normal operations of the Company for the sake of sustainable management.

The organizational structure of risk management is the responsibility of the general manager, who takes charge of the promotion and operation of risk management plans while respective units under the general manager are responsible for evaluating risk control and enforcing risk management on a daily basis.

( h )Other material events b None

.Special disclosures

( )Related party

1 Organizational structure of related party:

MICRO STAR INTERNATIONAL CO., LTD. 2017 Consolidated financial statements of the related party

MICRO STAR INTERNATIONAL CO., LTD.

==> picture [651 x 328] intentionally omitted <==

----- Start of picture text -----

100% 100% 100% 100% 100% 100%
MSI PACIFIC MSI MSI COMPUTER MSI COMPUTER MICRO-STAR MSI COMPUTER
INTERNATIONAL COMPUTER(CAYMAN)CO.,LTD. CORP (AUSTRALIA) NETHERLANDS JAPAN CO., LTD.
HOLDING CO., LT D. PTY. LTD. HOLDING B.V.
99% 99% 99%
MSI ITALY MSI TECHNOLOGY MSI MYSTAR MSI LLC “MSI MSI COMPUTER MSI MSI
COMPUTER”. TECHNOLOGIES POLSKA
S.R.L GMBH COMPUTER COMPUTER COMPUTER LIMITED COMPANY COMPUTER SP. Z.O.O.
SARL B.V. (UK) LTD. EUROPE B.V.
1% 1%
1%
MICRO-STAR MICRO MEGA STAR MEGA MHK MEGA COMPUTER MSI KOREA CO.,
INTERNATIONAL ELECTRONICS INFORMATION INFORMATION TECHNOLOGY INTERNATIONAL CO., LTD. LTD.
(B.V.I.) HOLDING CO., HOLDING CO., LTD. HOLDING CO., LTD. HOLDING CO., LTD. HOLDING CO., CO., LTD.
LTD.
LTD.
MSI COMPUTER MSI ELECTRONICS SHENZHEN MEGA MSI (SHENZHEN) CO., LTD. MSI TRADING
(SHENZHEN) CO., (KUNSHAN) CO., INFORMATION [CO., ] (SHENZHEN) CO.,
LTD. LTD. LTD. LTD.
----- End of picture text -----

2.Company profile of related party

(Unit: thousands)

2.Company profile of related party				(Unit: thousands)
Name of corporation	Date of Establishment	Address	Capital	Major Business Scope
MICRO-STAR INTERNATIONAL (B.V.I.)HOLDING CO.,LTD.	1998.02.04	TORTOLA,BRITISH VIRGIN ISLANDS	USD 47,521	Holding company
MSI COMPUTER CORP.	1998.03.25	CA,U.S.A.	USD 460	Sales and maintenance of computers, motherboard, and electronic components
MYSTAR COMPUTER B.V.	1998.05.28	EINDHOVEN,THE NETHERLANDS	EUR 2,027	Sales and maintenance of computers, motherboard, and electronic components
MSI COMPUTER (AUSTRALIA) PTY. LTD.	1998.07.31	NSW,AUSTRALIA	AUD 222	Sales and maintenance of computers, motherboard, and electronic components
MICRO-STAR NETHERLANDS HOLDING B.V.	1998.12.21	EINDHOVEN,THE NETHERLANDS	EUR 4,102	Holding company
MSI COMPUTER JAPAN CO., LTD.	1999.01.21	TOKYO,JAPAN	JPY 20,000	Sales and maintenance of computers, motherboard, and electronic components
MSI TECHNOLOGY GMBH	1999.03.01	FRANKFURT,GERMANY	EUR 1,945	Sales and maintenance of computers, motherboard, and electronic components
MSI COMPUTER SARL	1993.10.01 (1999.6.30purchase)	BUSSY SAINT GEORGES,FRANCE	EUR 730	Sales and maintenance of computers, motherboard, and electronic components
MYSTAR INVESTMENT HOLDING CO., LTD.	1999.07.13	TAIPEI,TAIWAN	-	In November 2017, this subsidiary has completed the liquidationprocess.
MSICOMPUTER (SHENZHEN)CO., LTD.	2000.04.12	SHENZHEN,CHINA	USD 51,800	Sales and manufacture of computers, motherboard, and electronic components
MSI COMPUTER (CAYMAN) CO., LTD.	2001.02.13	GEORGE TOWN,CAYMAN ISLANDS	USD 3,040	Holding company
MSI COMPUTER (UK) LTD.	2000.10.12	STAINES,UK	EUR 1,130	Sales and maintenance of computers, motherboard, and electronic components
MSI ELECTRONICS (KUNSHAN) CO., LTD.	2001.12.18	KUNSHAN,CHINA	USD 51,000	Sales and manufacture of computers, motherboard, and electronic components
MSI COMPUTER EUROPE B.V.	2002.04.09	EINDHOVEN,THE NETHERLANDS	EUR 1,149	Logistic
STAR INFORMATION HOLDING CO., LTD.	2002.06.14	TORTOLA,BRITISH VIRGIN ISLANDS	USD 4,503	Holding company
MICRO ELECTRONICS HOLDING CO., LTD.	2002.06.14	TORTOLA,BRITISH VIRGIN ISLANDS	USD 33,315	Holding company
MSI PACIFIC INTERNATIONAL HOLDING CO., LTD.	2002.06.18	GEORGE TOWN,CAYMAN ISLANDS	USD 47,204	Holding company
MSI KOREA CO., LTD.	2002.12.27	SEOUL,KOREA	KRW800,000	Sales and maintenance of computers, motherboard, and electronic components
MEGA INFORMATION HOLDING CO.,LTD.	2003.09.19	TORTOLA,BRITISH VIRGIN ISLANDS	USD 700	Holding company
SHENZHEN MEGA INFORMATION CO., LTD.	2003.11.19	SHENZHEN,CHINA	USD 700	Examines and maintenance of computers, motherboard, and electronic components
MSI POLSKA SP. Z O.O.	2006.04.24	WROCLAWSKIE,POLAND	EUR1,171	Sales and maintenance of computers, motherboard, and electronic components
MEGA TECHNOLOGY HOLDING CO., LTD.	2008.04.01	TORTOLA,BRITISH VIRGIN ISLANDS	USD3,000	Holding company

MSI TRADING (SHENZHEN) CO., LTD.	2008.04.01	SHENZHEN,CHINA	USD3,000	Sales and maintenance of computers, motherboard, and electronic components
MEGA COMPUTER CO., LTD.	2008.02.25	HONG KONG	HKD -	Sales and maintenance of computers, motherboard, and electronic components
LLC “MSI COMPUTER”	2009.10.09	MOSCOW,RUSSIA	EUR1,647	Sales and maintenance of computers, motherboard, and electronic components
MSI COMPUTER TECHNOLOGIES LIMITED COMPANY	2010.11.04	ISTANBUL,TURKEY	EUR77	Sales and maintenance of computers, motherboard, and electronic components
MSI ITALY S.R.L.	2010.11.12	MILANO,ITALY	EUR50	Sales and maintenance of computers, motherboard, and electronic components
MHK INTERNATIONAL CO., LTD.	2013.02.01	HONG KONG	HKD -	Sales and maintenance of computers, motherboard, and electronic components
MSI (SHENZHEN) CO., LTD.	2013.09.02	SHENZHEN,CHINA	USD1,000	Sales and maintenance of computers, motherboard, and electronic components

3.A controlling and hierarchical relationship according to Article 369.3 of Company Law None

4.Business scope of MSI Group:

MYSTAR INVESTMENT HOLDING CO., LTD., MICRO-STAR NETHERLANDS HOLDING B.V. MICRO-STAR INTERNATIONAL B.V.I. HOLDING CO.,LTD. MSI COMPUTER (CAYMAN) CO.,LTD. STAR INFORMATION HOLDING CO., LTD. MICRO ELECTRONICS HOLDING CO., LTD. MSI PACIFIC INTERNATIONAL HOLDING CO., LTD. MEGA INFORMATION HOLDING CO.,LTD. MEGA TECHNOLOGY HOLDING CO., LTD. are holding and investment company. MSI headquarter and rest of affiliated companies are focused in IT industry. MSI Headquarter is focused on manufacturing and sales, MSI COMPUTER (SHENZHEN) CO., LTD. and MSI ELECTRONICS (KUNSHAN) CO., LTD. are MSI’s contract manufactor, SHENZHEN MEGA INFORMATION CO., LTD. is worldwide repair center, rest overseas companies are focus in sales and marketing, selling MSI own brand products.

5.Directors, Supervisors and Presidents of related party

5.Directors, Supervisors and Presidents of related party
			Unit shares
Name of corporation	Title	Name of representative	Shareholding
			Shares	%
MICRO STAR INTERNATIONAL (B.V.I.) HOLDING CO., LTD.	Director & President	MICRO STAR INTERNATIONAL CO., LTD. Representative Yu,Hsien-Neng	0 0	0% 0%
MSI COMPUTER CORP.	Director & President Director Director	MICRO STAR INTERNATIONAL CO.,LTD. Representative Tung,Ti-Chun Huang,Chin-Ching Yu,Hsien-Neng	575,458 0 0 0	100% 0% 0% 0%
MYSTAR COMPUTER B.V.	Director & President Director Director	MICRO STAR INTERNATIONAL CO.,LTD. Representative Hung,Yu-Sheng Huang,Chin-Ching Wang,Ming-Jung	0 0 0 0	0% 0% 0% 0%
MSI COMPUTER (AUSTRALIA) PTY. LTD.	Director & President Director Director	MICRO STAR INTERNATIONAL CO.,LTD. Representative Huang,Chin-Ching Lin,Wen-Tung Chen,Yuan-Kang	221,836 0 0 0	100% 0% 0% 0%
MICRO-STAR NETHERLANDS HOLDING B.V.	Director & President	MICRO STAR INTERNATIONAL CO.,LTD. Representative Hsu,Hsiang	1,577,762 0	100% 0%
MSI COMPUTER JAPAN CO., LTD.	Director & President Director Director Supervisor	MICRO STAR INTERNATIONAL CO.,LTD. Representative Lin,Wen-Tung Huang,Chin-Ching HUNG,PAO-YU Hsu,Fen-Lan	1,400 0 0 0 0	100% 0% 0% 0% 0%
MSI TECHNOLOGY GMBH	liquidator	Chiu,Chih-Keng	0	0%
MSI COMPUTER SARL	Director & President Director Director	MICRO STAR INTERNATIONAL CO.,LTD. Representative Hung,Yu-Sheng Huang,Chin-Ching Wang,Ming-Jung	0 0 0 0	0% 0% 0% 0%
MYSTAR INVESTMENT HOLDING CO., LTD.	This Subsidiary has completed the liquidationprocess.		-	-
MSI COMPUTER (SHENZHEN) CO., LTD.	Director & President Director Director	MICRO STAR INTERNATIONAL CO.,LTD. Representative Yu,Hsien-Neng Hsu,Fen-Lan HUNG,PAO-YU	0 0 0 0	0% 0% 0% 0%
MSI COMPUTER (CAYMAN) CO., LTD.	Director & President	MICRO STAR INTERNATIONAL CO.,LTD. Representative Huang,Chin-Ching	50,000 0	100% 0%

MSI COMPUTER (UK) LTD.	Director & President Director Director	MICRO STAR INTERNATIONAL CO.,LTD. Representative Hung,Yu-Sheng Huang,Chin-Ching Wang,Ming-Jung	0 0 0 0	0% 0% 0% 0%
MSI ELECTRONICS (KUNSHAN) CO., LTD.	Director & President Director Director Supervisor	MICRO STAR INTERNATIONAL CO.,LTD. Representative Huang,Chin-Ching Hsu,Fen-Lan HUNG,PAO-YU Liu,Chu-Hao	0 0 0 0 0	0% 0% 0% 0% 0%
MSI COMPUTER EUROPE B.V.	Director & President	MICRO STAR INTERNATIONAL CO.,LTD. Representative Hung,Yu-Sheng	0 0	0% 0%
STAR INFORMATION HOLDING CO., LTD.	Director	MICRO STAR INTERNATIONAL CO.,LTD. Representative Hsu,Fen-Lan	0 0	0% 0%
MICRO ELECTRONICS HOLDING CO., LTD.	Director	MICRO STAR INTERNATIONAL CO.,LTD. Representative Hsu,Fen-Lan	0 0	0% 0%
MSI PACIFIC INTERNATIONAL HOLDING CO., LTD.	Director	MICRO STAR INTERNATIONAL CO.,LTD. Representative Hsu,Fen-Lan	47,208,118 0	100% 0%
MSI KOREA CO., LTD.	Director & President Director Director Supervisor	MICRO STAR INTERNATIONAL CO.,LTD. Representative Kung,Fan-Shu Hsu,Fen-Lan Lin,Wen-Tung HUNG,PAO-YU	0 0 0 0 0	0% 0% 0% 0% 0%
MEGA INFORMATION HOLDING CO.,LTD.	Director	MICRO STAR INTERNATIONAL CO.,LTD. Representative Hsu,Fen-Lan	0 0	0% 0%
SHENZHEN MEGA INFORMATION CO., LTD.	Director & President Director Director	MICRO STAR INTERNATIONAL CO.,LTD. Representative Yu,Hsien-Neng Hsu,Fen-Lan HUNG,PAO-YU	0 0 0 0	0% 0% 0% 0%
MSI POLSKA SP. Z O.O.	Director & President	MICRO STAR INTERNATIONAL CO.,LTD. Representative Yu,Hsien-Neng	0 0	0% 0%
MEGA TECHNOLOGY HOLDING CO., LTD.	Director	MICRO STAR INTERNATIONAL CO.,LTD. Representative Hsu,Fen-Lan	0 0	0% 0%
MSI TRADING (SHENZHEN) CO., LTD.	Executive Director Supervisor	MICRO STAR INTERNATIONAL CO.,LTD. Representative Liu,Chu-Hao HUNG,PAO-YU	0 0 0	0% 0% 0%
MEGA COMPUTER CO., LTD.	Director	MICRO STAR INTERNATIONAL CO.,LTD. Representative Hsu,Fen-Lan	0 0	0% 0%

LLC “MSI COMPUTER”	Director & President Director Director	MICRO STAR INTERNATIONAL CO.,LTD. Representative Hung,Yu-Sheng Huang,Chin-Ching Wang,Ming-Jung	0 0 0 0	0% 0% 0% 0%
MSI COMPUTER TECHNOLOGIES LIMITED COMPANY	liquidator	Cevat Binici	0	0%
MSI ITALY S.R.L.	Director & President Director Director	MICRO STAR INTERNATIONAL CO.,LTD. Representative Hung,Yu-Sheng Huang,Chin-Ching Wang,Ming-Jung	0 0 0 0	0% 0% 0% 0%
MHK INTERNATIONAL CO., LTD.	Director	MICRO STAR INTERNATIONAL CO.,LTD. Representative Hsu,Fen-Lan	0 0	0% 0%
MSI (SHENZHEN) CO., LTD.	Executive Director Supervisor	MICRO STAR INTERNATIONAL CO.,LTD. Representative Hung,Yu-Sheng HUNG,PAO-YU	0 0 0	0% 0% 0%

6.Business operation of the related party

				Expressed in thousands of NTD (Except as otherwise indicated)	Expressed in thousands of NTD (Except as otherwise indicated)	Expressed in thousands of NTD (Except as otherwise indicated)	Expressed in thousands of NTD (Except as otherwise indicated)	Expressed in thousands of NTD (Except as otherwise indicated)
Name of corporation	Capital (unit: thousands)	Total Assets	Total Liabilities	Net Worth	Revenue	Operating Income (Loss)	Net Income (Loss))	Earning(Loss) (Per Share NTD)
MICRO-STAR INTERNATIONAL (B.V.I.) HOLDING CO., LTD.	USD47,521 (Rate 29.76)	3,871,025	5,408	3,865,617	0	(18,523)	129,625	0.09 (NOTE 2)
MSI COMPUTER CORP.	USD 460 (Rate 29.76)	7,109,564	7,076,149	33,415	15,089,025	52,227	32,835	2.40 (NOTE 2)
MYSTAR COMPUTER B.V.	EUR 2,027 (NOTE 1) (Rate 35.57)	537,313	309,779	227,534	1,784,460	19,853	7,190	0.10 (NOTE 2)
MSI COMPUTER (AUSTRALIA) PTY.LTD.	AUD 222 (Rate 23.185)	8,141	1,083	7,058	24,711	872	365	0.07 (NOTE 2)
MICRO-STAR NETHERLANDS HOLDING B.V.	EUR 4,102 (NOTE 1) (Rate 35.57)	725,935	11,728	714,207	58,608	(9,155)	16,145	0.11 (NOTE 2)
MSI COMPUTER JAPAN CO., LTD.	JPY 20,000 (Rate 0.2642)	14,812	3,662	11,150	57,822	392	(374)	(0.07) (NOTE2
MSI TECHNOLOGY GMBH	EUR 1,945 (NOTE 1) (Rate 35.57)	110,883	106,703	4,180	0	(1,150)	(560)	(0.01) (NOTE2 4)
MSI COMPUTER SARL	EUR 730 (NOTE 1) (Rate 35.57)	66,651	20,856	45,795	97,764	1,445	2,650	0.10 (NOTE2)
MYSTAR INVESTMENT HOLDING CO., LTD.	-	0	0	0	0	0	(2,391)	(NOTE3)
MSI COMPUTER (SHENZHEN) CO., LTD.	USD 51,800 (Rate 29.76)	5,683,364	2,272,334	3,411,030	3,745,043	134,223	129,576	0.08 (NOTE2)
MSI COMPUTER (CAYMAN) CO., LTD.	USD 3,040 (Rate 29.76)	142,751	18,730	124,021	0	(9,624)	60	(0.00) (NOTE2)
MSI COMPUTER (UK) LTD.	EUR1,130 (NOTE 1) (Rate 35.57)	12,469	1,179	11,290	20,994	309	433	0.01 (NOTE2)
MSI ELECTRONIC (KUNSHAN) CO., LTD.	USD 51,000 (Rate 29.76)	2,912,235	897,043	2,015,192	1,378,535	79,033	123,386	0.08 (NOTE2)
MSI COMPUTER EUROPE B.V.	EUR 1,149 (Rate 35.57)	110,738	71,478	39,260	178,875	898	543	0.01 (NOTE2)
STAR INFORMATION HOLDING CO., LTD.	USD4,503 (Rate 29.76)	33,506	0	33,506	0	(44)	2,283	0.02 (NOTE2)
MICRO ELECTRONICS HOLDING CO., LTD.	USD 33,315 (Rate 29.76)	2,386,057	1,080	2,384,977	0	(15,818)	123,176	0.12 (NOTE2)

MSI PACIFIC INTERNATIONAL HOLDING CO., LTD.	USD 47,204 (Rate 29.76)	11,755,648	5,264,741	6,490,907	4,969,923	(786)	325,822	0.23 (NOTE2)
MSI KOREA CO., LTD.	KRW 800,000 (Rate 0.0279)	355,667	113,836	241,831	2,723,543	39,347	54,333	2.43 (NOTE 2)
MEGA INFORMATION HOLDING CO., LTD.	USD 700 (Rate 29.76)	21,574	0	21,574	0	0	1,245	0.06 (NOTE 2)
SHENZHEN MEGA INFORMATION CO., LTD.	USD 700 (Rate 29.76)	30,735	9,161	21,574	50,492	1,640	1,245	0.06 (NOTE 2)
MSI POLSKA SP. Z O.O.	EUR1,171 (NOTE 1) (Rate 35.57)	40,670	8,927	31,743	140,026	2,120	622	0.01 (NOTE 2)
MEGA TECHNOLOGY HOLDING CO., LTD.	USD 3,000 (Rate 29.76)	0	5,984	(5,984)	0	0	(3,824)	(0.04) (NOTE 2)
MSI TRADING (SHENZHEN) CO., LTD	USD 3,000 (Rate 29.76)	7,010	12,994	(5,984)	564	(3,338)	(3,824)	(0.04) (NOTE 2)
MEGA COMPUTER CO., LTD.	HKD - (Rate 4.158)	1,658,599	1,651,223	7,376	5,203,865	(535)	(448)	- (NOTE 2)
LLC “MSI COMPUTER”	EUR 1,647 (Rate 35.57)	37,466	4,083	33,383	66,302	629	(718)	(0.01) (NOTE 2)
MSI COMPUTER TECHNOLOGIES LIMITED COMPANY	EUR 77 (Rate 35.57)	17	101	(84)	0	0	0	0 (NOTE 4)
MSI ITALY S.R.L.	EUR 50 (Rate 35.57)	9,735	9,138	597	28,993	1,052	449	0.25 (NOTE 2)
MHK INTERNATIONAL CO., LTD.	HKD - (Rate 4.158)	45,271	38,046	7,225	119,165	3,431	3,733	- (NOTE 2)
MSI (Shenzhen) Co., Ltd.	USD 1,000 (Rate 29.76)	1,736,882	1,716,430	20,452	6,326,736	(7,152)	2,147	0.07 (NOTE2)

Note 1 Capital includes surplus.

Note 2 Earnings per share was calculated based on each NTD of capital instead of each share.

Note 3: In November 2017, this subsidiary has completed the liquidation process.

Note 4: MSI TECHNOLOGY GMBH. & MSI COMPUTER TECHNOLOGIES LIMITED COMPANY. are under liquidation.

7.Consolidated Financial Statements of the parent company and subsidiaries r Please refer to page 97 s 166 8.Related Party Report r Not Applicable
Affiliated companies’ transaction on guarantee, endorsement, loans to others and derivatives: please refer to page 153 .
( t )Subscription of marketable securities privately in the most recent years and up to the date of the report printed u None
( v )Status of MSI Common Shares Acquired, Disposed of, and Held by Subsidiaries: None
( w )Other Necessary Supplement: None.
( x )Occurrence of events defined in Securities Transaction Law Article 36.2.2 that has great impact on shareholders’ equity or security price in the most recent years and up to the date of the repost printed r None

MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT ACCOUNTANTS DECEMBER 31, 2017 AND 2016

For the convenience of readers and for information purpose only, the auditors’ report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. In the event of any discrepancy between the English version and the original Chinese version or any differences in the interpretation of the two versions, the Chinese-language auditors’ report and financial statements shall prevail.

Representation Letter

In connection with the Consolidated Financial Statements of Affiliated Enterprises of MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES (the “Consolidated FS of the Affiliates”), we represent to you that, the entities required to be included in the Consolidated FS of the Affiliates as of and for the year ended December 31, 2017 in accordance with the “Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises” are the same as those required to be included in the Consolidated Financial Statements of MICRO-STAR INTERNATIONAL CO., LTD. and its subsidiaries (the “Consolidated FS of the Group”) in accordance with International Financial Reporting Standard 10, as well as that, the information required to be disclosed in the Consolidated FS of Affiliates is disclosed in the Consolidated FS of the Group. Consequently, MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES do not prepare a separate set of Consolidated FS of Affiliates.

Very truly yours, MICRO-STAR INTERNATIONAL CO., LTD. By

Joseph Hsu, Chairman March 23, 2018

REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE

To the Board of Directors and Shareholders of MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES

Opinion

We have audited the accompanying consolidated balance sheets of MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES (the “Group”) as at December 31, 2017 and 2016, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2017 and 2016, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the “Regulations Governing the Preparations of Financial Reports by Securities Issuers” and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission.

Basis for opinion

We conducted our audits in accordance with the “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants” and generally accepted auditing standards in the Republic of China (ROC GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the consolidated Financial Statements section of our report. We are independent of the Group in accordance with the Code of Professional Ethics for Certified Public Accountants in the Republic of China (the “Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole and, in forming our opinion thereon, we do not provide a separate opinion on these matters.

Key audit matters for the Group’s consolidated financial statements of the current period are stated as follows:

Occurrence of sales revenue from significant customers

Description

Please refer to Note 4(25) for accounting policies on revenue recognition. Other than international brands, the Group sells its products to customers in various countries. With the Group actively developing new products, sales revenue increases progressively every year, and the occurrence of sales revenue is critical to the financial statements. Thus, the occurrence of sales revenue from new significant customers, excluding international brands, was identified as a key audit matter. How our audit addressed the matter

We performed the following audit procedures in respect of the above key audit matter:

A. Obtained an understanding of and assessed internal controls in relating to sales revenue from new significant customers, and validated the operating effectiveness of those above mentioned internal controls.
B. Obtained detailed listing of sales revenue from new significant customers in the current year, and validated supporting documents, including sales invoices, customer purchase orders and delivery documents.
C. Inspected contents and relevant evidences in relating to sales returns and discounts occurred subsequent to the reporting period and assessed the reasonableness of respective sales revenue recognised.

Estimation of allowance for inventory valuation losses

Description

Please refer to Note 4(11), for accounting policies on inventory valuation, Note 5(2) for the

100

uncertainty of accounting estimates and assumptions applied on inventory valuation, and Note 6(4) for details of inventories. As of December 31, 2017, the balances of inventories and allowance for inventory valuation losses are NT$16,660,509 thousand and NT$339,482 thousand, respectively.

The Group is primarily engaged in manufacturing and sales of motherboard, interface card, notebook computer and other electronic products. Due to the rapid technological innovations, shorter electronic product life cycles, and the fluctuation of market prices within the industry, there is a higher risk of inventory losses due from market value decline or obsolescence. The Group recognises inventories at the lower of cost and net realisable value. As the monetary values of inventories are material, and there are various types of inventories, the estimation and determination of the net realisable value of inventories as at the balance sheet date are subject to management’s judgement and contain a high level of uncertainty and have material effects on the financial statements, and therefore, it was identified as a key audit matter.

How our audit addressed the matter

We performed the following audit procedures in respect of the above key audit matter:

A. Assessed the reasonableness and the consistency of policies in relating to the provision of allowance for inventory valuation losses and procedures based on our understanding of the Group’s operations and industry.
B. Validated the appropriateness of system logic of the report of individually identified obsolete inventory prepared by management and confirmed the consistency with Group’s policies.
C. Validated the appropriateness of estimation basis for net realisable value of inventories and inspected respective supporting documents, including sales prices or purchase prices, reperformed the calculation of the report and assessed the reasonableness of management’s determination of net realisable value of inventories.

Other matter –Reference to audits of other independent accountants

We did not audit the financial statements of certain consolidated subsidiaries and investments accounted for under the equity method that are included in the consolidated financial statements. Those financial statements were audited by other independent accountants, whose reports thereon have been furnished to us, and our opinion expressed herein is based solely on reports of the other independent accountants. Total assets of the abovementioned entities (including investments

101

accounted for under the equity method) amounted to NT$10,202,580 thousand and NT$8,590,957 thousand as at December 31, 2017 and 2016, constituting 21% and 17% of consolidated total assets, respectively. Sales revenue of the above mentioned entities amounted to NT$24,629,128 thousand and NT$19,393,533 thousand, for the years ended December 31, 2017 and 2016, constituting 23% and 19% of consolidated total sales revenue, respectively.

Other matter – Parent company only financial reports

We have audited and expressed an unmodified opinion on the parent company only financial statements of MICRO-STAR INTERNATIONAL CO., LTD. as at and for the years ended December 31, 2017 and 2016.

Responsibilities of management and those charged with governance for the consolidated financial statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the “Regulations Governing the Preparations of Financial Reports by Securities Issuers” and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance, including supervisors, are responsible for overseeing the Group’s financial reporting process.

Independent accountant’s responsibilities for the audit of the consolidated

financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial

102

statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ROC GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ROC GAAS, we exercise professional judgement and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the consolidated financial statements,

103

including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Liang, Hua-Ling

[Lai, Chung-Hsi ]

For and on behalf of PricewaterhouseCoopers, Taiwan March 23, 2018

The accompanying consolidated financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying consolidated financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice.

As the financial statements are the responsibility of the management, PricewaterhouseCoopers cannot accept any liability for the use of, or reliance on, the English translation or for any errors or misunderstandings that may derive from the translation.

104

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||Assets|||Notes|||||AMOUNT|||%||AMOUNT|%|
||Current assets|||||||||||||||
|1100|Cash and cash equivalents|6(1)||||||£|||¤¥¦¥§
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|1110|Financial assets at fair value|6(2)||||||||||||||
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|1150|Notes receivable, net||||||||||ª¤|®||©¦¯¯¥|®|
|1170|Accounts receivable, net|6(3)|||||||||¤¬¦¤¥
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¤|ª©|
|1200|Other receivables||||||||||¯¥¦¨
¤¥|¤||¯¯¯¦ª
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|1220|Current income tax assets||||||||||¦§©|®||¬¦¬¥ª|®|
|130X|Inventories, net|6(4)|||||||||¤¨¦¯ª
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|1410|Prepayments|6(5)|||||||||¤¦ª§ª
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|11XX|Total current assets||||||||||¯¦¤©
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|1543|Financial assets carried at cost -|||||||||||||||
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|1600|Property, plant and equipment|6(6)|and 8||||||||¬¦¥©«
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|1760|Investment property - net|6(7)|||||||||¯¯«¦©
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|1840|Deferred income tax assets|6(20)|||||||||¯©¦¥
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|1900|Other non-current assets|6(8)|and 8||||||||¤§¦¯
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105

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									December 31, 2017							December 31, 2016
	LiabilitiesandEquity			Notes					AMOUNT				%			AMOUNT		%
	Current liabilities
2120	Financial liabilities at fair value	6(2)
	through profit or loss - current							Þ			ßàáàà â		ã		Þ	äáàåæ		ã
2170	Accounts payable										äçáæå ßáåå è		åß			äâáæà éáâß ç		åç
2200	Other payables	6(9)									åáàêæ áèâé		é			åáéèæ áçèä		é
2230	Current income tax liabilities										âäåáè åé		ß			éäéáê äâ		ä
2250	Provision for liabilities - current	6(12)									àèàáé àà		ä			åäæáé åâ		ä
2300	Other current liabilities										äæèáæ æç		ã			åçàáè àâ		ä
21XX	Total current liabilities										ßæáêß æáçè é		àß			ßåáäê åáää ä		àç
	Non-current liabilities
2540	Long-term borrowings	6(10) and 8									äçáçà ß		ã			äêáæè é		ã
2570	Deferred income tax liabilities	6(20)									äçáêç é		ã			äêáäê â		ã
2640	Net defined benefit liability,	6(11)
	non-current										ßæßáé èé		ä			äéäáé êà		ã
2670	Other non-current liabilities,
	others										äêåáæ êç		ã			äéàáä ßç		ä
25XX	Total non-current liabilities										àßêáà çß		ä			åâàáä éè		ä
2XXX	Total liabilities										ßäáåè æáää ê		àå			ßåáèé éáßâ ç		àé
	Equity attributable to owners of
	parent
	Share capital	6(13)
3110	Share capital - common stock										âáààâ áèçß		äé			âáààâ áèçß		äé
	Capital surplus	6(14)
3200	Capital surplus										äáßßè áçäè		å			ßáæéæ áàéä		à
	Retained earnings	6(15)
3310	Legal reserve										åáââà áéßß		â			åáåêè áêßâ		é
3320	Special reserve										åâêáà âß		ä			åâêáà âß		ä
3350	Unappropriated retained earnings	6(20)									äàáßé çáéæ à		ßê			äßáâä çáßä è		ßè
	Other equity interest
3400	Other equity interest						ë				àßäáâ äè ì	ë	äì	ë		ßåæáä çæ ì	ë	äì
31XX	Equity attributable to owners
	of the parent										ßéáâæ åáßé æ		èé			ßçáâê æáàê â		èå
3XXX	Total equity										ßéáâæ åáßé æ		èé			ßçáâê æáàê â		èå
3X2X	Total liabilities and equity							Þ			àêáäè åáåâ ê		äææ		Þ	èæáàç éáéâ à		äææ

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																	Year	ended December			31
																2017					2016
	Items					Notes							AMOUNT					%			AMOUNT		%
4000	Sales revenue															!" #?$ "$ %					&" $ "% '
5000	Operating costs			6(4)(18)						(					$?"' ))" !?& *		(		)! *	(	),"& ')" )'' *	(	)% *
5900	Net operating margin															%" '?" &$'			#		#"$ %?" !,		%
	Operating expenses			6(18)
6100	Selling expenses									(						%"' )", $$ *	(		%*	(	%"&# ") $) *	(	% *
6200	General and administrative expenses									(						$ ," $# *	(		*	(	,$?" ',) *	(	*
6300	Research and development expenses									(						'"& ") $' *	(		'*	(	'"'$ $"# %% *	(	' *
6000	Total operating expenses									(						$"# ,"! '' *	(		$*	(	$"#' &", ' *	(	$ *
6900	Operating profit															%"! '"! !			%		%"% )"$ '$		!
	Non-operating income and expenses
7010	Other income			6(7)(16)												')!" &,%			-		',)" $!&		-
7020	Other gains and losses			6(2)(17)						(						)" ' *			-	(	,'" %% *		-
7050	Finance costs									(						'"'% ' *			-	(	&"%, # *		-
7000	Total non-operating income and
	expenses															'!#" )$&			-		' '" &''		-
7900	Profit before income tax															%"$, )"% %&			%		%")& &" ,&		!
7950	Income tax expense			6(20)						(						" # " ' *	(		*	(	$'#" &' *	(	*
8200	Profit for the year															#"$' ,"# &&			#		#")) ,"$ #&		%
	Other comprehensive income
	Components of other
	comprehensive loss that will not be
	reclassified to profit or loss
8311	Actuarial loss on defined benefit		plan	6(11)						(						',"% & *			-	(	&?" &$ *		-
8349	Income tax related to components of
	other comprehensive income	that will
	not be reclassified to profit or loss															!"', )			-		'"%$ &		-
8310	Components of other
	comprehensive loss that will not
	be reclassified to profit or loss									(						'?" #& *			-	(	,"% ', *		-
	Components of other
	comprehensive income that	will be
	reclassified to profit or loss
8361	Financial statements translation
	differences of foreign operations									(						$?" !%% *			-	(	,! " ' *	(	*
8360	Components of other
	comprehensive income that will
	be reclassified to profit or loss									(						$?" !%% *			-	(	,! " ' *	(	*
8300	Total other comprehensive loss for the
	year									(						&&&" ,$, *			-	(	,,," !% *	(	*
8500	Total comprehensive income for the
	year															#", #"! &%			#		#" "& $&		#
	Profit attributable to:
8610	Owners of the parent															#"$' ,"# &&			#		#")) ,"$ #&		%
	Comprehensive income attributable
	to:
8710	Owners of the parent															#", #"! &%			#		#" "& $&		#
	Earnings per share (in dollars)			6(21)
9750	Basic earnings per share																	%.)#					%.,$
9850	Diluted earnings per share																	%.,$					%.,'

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107

2016
Balance at January 1, 2016
Appropriations of 2015 earnings :	6(15)
Legal reserve
Cash dividends
Cash dividends from capital surplus	6(14)
Disposal of subsidiaries or investments accounted for using
equity method
Profit for the year
Other comprehensive loss for the year
Balance at December 31, 2016
2017
Balance at January 1, 2017
Appropriations of 2016 earnings :	6(15)
Legal reserve
Cash dividends
Cash dividends from capital surplus	6(14)
Profit for the year
Other comprehensive loss for the year
Balance at December 31, 2017

108

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110

MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

1. HISTORY AND ORGANISATION

MICRO-STAR INTERNATIONAL CO., LTD. (the “Company”) was incorporated as a company limited by shares under the laws of the Republic of China (R.O.C.) in August 1986 and started its operations in the same year. The Company and its subsidiaries (collectively referred herein as the “Group”) are primarily engaged in the manufacture and sale of motherboards and computer hardware. The shares of the Company have been listed on the Taiwan Stock Exchange since October 1998. The Company is the Group’s ultimate parent company.

THE DATE OF AUTHORISATION FOR ISSUANCE OF THE CONSOLIDATED FINANCIAL STATEMENTS AND PROCEDURES FOR AUTHORISATION

These consolidated financial statements were reported to the Board of Directors on March 23, 2018.

3. APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS

(1) Effect of the adoption of new standards and amendments to International Financial Reporting Standards (“IFRS”) as endorsed by the Financial Supervisory Commission (“FSC”)

New standards, interpretations and amendments endorsed by FSC effective from 2017 are as follows:

follows:

New Standards,InterpretationsandAmendments

Effective date by
International Accounting
StandardsBoard

Amendments to IFRS 10, IFRS 12 and IAS 28, ‘Investment entities:
applying the consolidation exception’
Amendments to IFRS 11, ‘Accounting for acquisition of interests in
joint operations’
IFRS 14,‘Regulatory deferral accounts’
Amendments to IAS 1, ‘Disclosure initiative’
Amendments to IAS 16 and IAS 38, ‘Clarification of acceptable
methods of depreciation and amortisation’
Amendments to IAS 16 and IAS 41, ‘Agriculture: bearer plants’
Amendments to IAS 19, ‘Defined benefit plans: employee
contributions’
Amendments to IAS 27, ‘Equity method in separate financial
statements’
Amendments to IAS 36, ‘Recoverable amount disclosures for non-
financial assets’
Amendments to IAS 39, ‘Novation of derivatives and continuation of
hedge accounting’
IFRIC 21, ‘Levies’

January 1, 2016
January 1, 2016
January 1, 2016
January 1, 2016
January 1, 2016
January 1, 2016
July 1, 2014
January 1, 2016
January 1, 2014
January 1, 2014
January 1, 2014

111

	Effective date by
	International Accounting
New Standards,InterpretationsandAmendments	StandardsBoard
Annual improvements to IFRSs 2010-2012 cycle	July 1, 2014
Annual improvements to IFRSs 2011-2013 cycle	July 1, 2014
Annual improvements to IFRSs 2012-2014 cycle	January 1, 2016
The above standards and interpretations have no significant impact to the Group’s financial
condition and operating result based on the Group’s assessment.
(2) Effect of new issuances of or amendments to IFRSs as endorsed by the FSC but not yet adopted

by the Group

New standards, interpretations and amendments endorsed by the FSC effective from 2018 are as follows:

New Standards,InterpretationsandAmendments

Effective date by
International Accounting
StandardsBoard

Amendments to IFRS 2, ‘Classification and measurement of share-
based payment transactions’
Amendments to IFRS 4, ‘Applying IFRS 9 Financial instruments with
IFRS 4 Insurance contracts’
IFRS 9, ‘Financial instruments’
IFRS 15, ‘Revenue from contracts with customers’
Amendments to IFRS 15, ‘Clarifications to IFRS 15 Revenue from
contracts with customers’
Amendments to IAS 7, ‘Disclosure initiative’
Amendments to IAS 12, ‘Recognition of deferred tax assets for
unrealised losses’
Amendments to IAS 40, ‘Transfers of investment property’
IFRIC 22, ‘Foreign currency transactions and advance consideration’
Annual improvements to IFRSs 2014-2016 cycle- Amendments to
IFRS 1, ‘First-time adoption of International Financial Reporting
Standards’
Annual improvements to IFRSs 2014-2016 cycle- Amendments to
IFRS 12, ‘Disclosure of interests in other entities’
Annual improvements to IFRSs 2014-2016 cycle- Amendments to IAS
28, ‘Investments in associates and joint ventures’

January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2017
January 1, 2017
January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2017
January 1, 2018

The above standards and interpretations have no significant impact to the Group’s financial condition and financial performance based on the Group’s assessment.

(3) IFRSs issued by IASB but not yet endorsed by the FSC

New standards, interpretations and amendments issued by IASB but not yet included in the IFRSs as endorsed by the FSC are as follows:

112

New Standards,InterpretationsandAmendments

Effective date by
International Accounting
StandardsBoard

Amendments to IFRS 9, ‘Prepayment features with negative
compensation’
Amendments to IFRS 10 and IAS 28, ‘Sale or contribution of assets
between an investor and its associate or joint venture’
IFRS 16, ‘Leases’
IFRS 17, ‘Insurance contracts’
Amendments to IAS 19, ‘Plan amendment, curtailment or settlement’
Amendments to IAS 28, ‘Long-term interests in associates and joint
ventures’
IFRIC 23, ‘Uncertainty over income tax treatments’
Annual improvements to IFRSs 2015-2017 cycle

January 1, 2019
To be determined by
International Accounting
Standards Board
January 1, 2019
January 1, 2021
January 1, 2019
January 1, 2019
January 1, 2019
January 1, 2019

Except for the following, the above standards and interpretations have no significant impact to the Group’s financial condition and financial performance based on the Group’s assessment. The quantitative impact will be disclosed when the assessment is complete. A. IFRS 16, ‘Leases’

IFRS 16, ‘Leases’, replaces IAS 17, ‘Leases’ and related interpretations and SICs. The standard requires lessees to recognise a 'right-of-use asset' and a lease liability (except for those leases with terms of 12 months or less and leases of low-value assets). The accounting stays the same for lessors, which is to classify their leases as either finance leases or operating leases and account for those two types of leases differently. IFRS 16 only requires enhanced disclosures to be provided by lessors.

B. Amendments to IAS 19, ‘Plan amendment, curtailment or settlement’

When a change to a plan take place, the amendments require a company to use the updated assumptions from this remeasurement to determine current service cost and net interest for the remainder of the reporting period after the change to the plan.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

(1) Compliance statement

The consolidated financial statements of the Group have been prepared in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”, International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the FSC (collectively referred herein as the “IFRSs”).

113

(2) Basis of preparation

A. Except for the following items, the consolidated financial statements have been prepared under the historical cost convention:
- (a) Financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.
- (b) Defined benefit liabilities recognised based on the net amount of pension fund assets less present value of defined benefit obligation.
B. The preparation of financial statements in conformity with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5.
(3) Basis of consolidation
A. Basis for preparation of consolidated financial statements:
- (a) All subsidiaries are included in the Group’s consolidated financial statements. Subsidiaries are all entities (including structured entities) controlled by the Group. The Group controls an entity when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Consolidation of subsidiaries begins from the date the Group obtains control of the subsidiaries and ceases when the Group loses control of the subsidiaries.
- (b) Inter-company transactions, balances and unrealized gains or losses on transactions between companies within the Group are eliminated. Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the policies adopted by the Group.
- (c) Changes in a parent’s ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary (transactions with non-controlling interests) are accounted for as equity transactions, i.e. transactions with owners in their capacity as owners. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity.
- (d) When the Group loses control of a subsidiary, the Group remeasures any investment retained in the former subsidiary at its fair value. That fair value is regarded as the fair value on initial recognition of a financial asset or the cost on initial recognition of the associate or joint venture. Any difference between fair value and carrying amount is recognised in profit or loss. All amounts previously recognised in other comprehensive income in relation to the subsidiary are reclassified to profit or loss on the same basis as would be required if the related assets or liabilities were disposed of. That is, when the Group loses control of a subsidiary, all gains or losses previously recognised in other comprehensive income in relation to the subsidiary should be reclassified from equity to profit or loss, if such gains or losses would be reclassified to profit or loss when the related assets or liabilities are disposed of.

114

B. Subsidiaries included in the consolidated financial statements:

Name of Investor	Name ofsubsidiaries	Main business activities	Ownership(%)	Ownership(%)	Note
			2017/12/31	2016/12/31
MICRO-STAR INTERNATIONAL CO., LTD. µ µ µ µ µ µ MSI (HOLDING) µ µ µ	MICRO-STAR NETHERLANDS HOLDING B.V. [MSI (HOLDING)] MSI PACIFIC INTERNATIONAL HOLDING CO., LTD. [MSI (PACIFIC)] MSI COMPUTER CORP.[MSI (LA)] MSI JAPAN CO., LTD. [MSI (JAPAN)] MSI COMPUTER (AUSTRALIA) PTY. LTD. [MSI (AUSTRALIA)] MSI COMPUTER (CAYMAN) CO., LTD. [MSI COMPUTER (CAYMAN)] MYSTAR INVESTMENT HOLDING CO., LTD. [MYSTAR INVESTMENT] MYSTAR COMPUTER B.V. [MYSTAR] MSI TECHNOLOGY GMBH [MSI (GMBH)] MSI COMPUTER SARL [MSI (SARL)] MSI COMPUTER (UK) LTD. [MSI (UK)]	Investment holding company µ Sales and maintenance of computers and electronic components Sales support and maintenance of computers and electronic components Maintenaance and after-sales services of computers and electronic components Investment holding company General investment Sales support of computers and electronic components µ µ µ	100 100 100 100 100 100 - 100 100 100 100	100 100 100 100 100 100 100 100 100 100 100	B A B C A B A and D B B and E B µ

115

Name of Investor	Name ofsubsidiaries	Main business activities	Ownership(%)	Ownership(%)	Note
			2017/12/31	2016/12/31
MSI (HOLDING) µ µ µ µ MSI (EUROPE) µ µ MSI (PACIFIC) µ µ	MSI POLSKA SP. Z O. O. [MSI (POLSKA)] MSI COMPUTER EUROPE B.V. [MSI (EUROPE)] LLC MSI COMPUTER [MSI (RUSSIA)] MSI COMPUTER TECHNOLOGIES LIMITED COMPANY [MSI (TURKEY)] MSI ITALY S.R.L [MSI (ITALY)] MSI POLSKA SP. Z O. O. [MSI (POLSKA)] LLC MSI COMPUTER [MSI (RUSSIA)] MSI COMPUTER TECHNOLOGIES LIMITED COMPANY [MSI (TURKEY)] MSI KOREA CO., LTD. [MSI (KOREA)] STAR INFORMATION HOLDING CO., LTD. [STAR INFORMATION] MEGA INFORMATION HOLDING CO., LTD. [MEGA INFORMATION]	Maintenance and after-sales services of computers and electronic components Logistics services of computers and electronic components Sales support and maintenance of computers and electronic components Sales support of computers and electronic components µ Maintenance and after-sales services of computers and electronic components Sales support and maintenance of computers and electronic components Sales support of computers and electronic components Sales and maintenance of computers and electronic components Investment holding company µ	99 100 99 99 100 1 1 1 100 100 100	99 100 99 99 100 1 1 1 100 100 100	B µ µ B and E B µ µ B and E B A µ

116

Name of Investor	Name ofsubsidiaries	Main business activities	Ownership(%)	Ownership(%)	Note
			2017/12/31	2016/12/31
MSI (PACIFIC) µ µ µ µ MEGA INFORMATION MICRO ELECTRONICS STAR INFORMATION MSI (B.V.I.) MEGA TECHNOLOGY	MICRO-STAR INTERNATIONAL (B.V.I) HOLDING CO., LTD. [MSI (B.V.I.)] MICRO ELECTRONICS HOLDING CO., LTD. [MICRO ELECTRONICS] MEGA TECHNOLOGY HOLDING CO., LTD. [MEGA TECHNOLOGY] MEGA COMPUTER CO., LTD. [MEGA COMPUTER] MHK INTERNATIONAL CO., LTD. [MSI (MHK)] SHENZHEN MEGA INFORMATION CO., LTD. [SHENZHEN MEGA INFORMATION] MSI ELECTRONICS (KUNGSHAN) CO., LTD. [MSI ELECTRONICS (KUNSHAN)] MSI (SHENZHEN) CO., LTD. [MSI SHENZHEN] MSI COMPUTER (SHENZHEN) CO., LTD. [MSI COMPUTER (SHENZHEN)] MSI COMPUTER TRADING (SHENZHEN) CO., LTD. [MSI TRADING (SHENZHEN)]	Investment holding company µ µ Sales support of computers and electronic components µ Examination and maintenance of computers, and electronic components Sales and manufacture of computers, and electronic components Sales and maintenance of computers, and electronic components Sales and manufacture of computers and electronic componentss Sales and maintenance of computers and electronic componentss	100 100 100 100 100 100 100 100 100 100	100 100 100 100 100 100 100 100 100 100	A µ µ B µ A µ µ µ µ

Note A: These investee companies are included in the consolidated financial statement based on their financial statements which were audited by the Group’s independent accountants for the corresponding period.

117

Note B: These investee companies are included in the consolidated financial statement based on their financial statements which were audited by other independent accountants for the corresponding period.
Note C: As of December 31, 2017 and 2016, these investee companies are included in the consolidated financial statements based on their financial statements which were audited by the Group’s independent accountants and other independent accountants for the corresponding period.
Note D: In November 2017, this subsidiary has completed the liquidation process.
Note E: The subsidiary is in the process of liquidation.
C. Subsidiaries not included in the consolidated financial statements: None.
D. Adjustments for subsidiaries with different balance sheet dates: None.
E. Significant restrictions: None.
F. Subsidiaries that have non-controlling interests that are material to the Group: None.

(4)Foreign currency translation

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in New Taiwan Dollars, which is the Company’s functional and the Group’s presentation currency.

A. Foreign currency transactions and balances
(a) Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions are recognised in profit or loss in the period in which they arise.
(b) Monetary assets and liabilities denominated in foreign currencies at the period end are re-translated at the exchange rates prevailing at the balance sheet date. Exchange differences arising upon re-translation at the balance sheet date are recognised in profit or loss.
(c) Non-monetary assets and liabilities denominated in foreign currencies held at fair value through profit or loss are re-translated at the exchange rates prevailing at the balance sheet date; their translation differences are recognised in profit or loss. Non-monetary assets and liabilities denominated in foreign currencies held at fair value through other comprehensive income are re-translated at the exchange rates prevailing at the balance sheet date; their translation differences are recognised in other comprehensive income. However, non-monetary assets and liabilities denominated in foreign currencies that are not measured at fair value are translated using the historical exchange rates at the dates of the initial transactions.
(d) All foreign exchange gains and losses are presented in the statement of comprehensive income within ‘other gains and losses’.
B. Translation of foreign operations
(a) The operating results and financial position of all the group entities, associates and joint arrangements that have a functional currency different from the presentation currency are translated into the presentation

118

currency as follows:

i. Assets and liabilities for each balance sheet presented are translated at the closing exchange rate at the date of that balance sheet;
ii. Income and expenses for each statement of comprehensive income are translated at average exchange rates of that period; and
iii. All resulting exchange differences are recognised in other comprehensive income.
(b) When the foreign operation partially disposed of or sold is a subsidiary, cumulative exchange differences that were recorded in other comprehensive income are proportionately transferred to the non-controlling interest in this foreign operation. In addition, even when the Group retains partial interest in the former foreign subsidiary after losing control of the former foreign subsidiary, such transactions should be accounted for as disposal of all interest in the foreign operation.

(5)Classification of current and non-current items

A. Assets that meet one of the following criteria are classified as current assets; otherwise they are classified as non-current assets:
(a) Assets arising from operating activities that are expected to be realized, or are intended to be sold or consumed within the normal operating cycle;
(b) Assets held mainly for trading purposes;
(c) Assets that are expected to be realized within twelve months from the balance sheet date;
(d) Cash and cash equivalents, excluding restricted cash and cash equivalents and those that are to be exchanged or used to settle liabilities more than twelve months after the balance sheet date.

The Group classifies assets that do not meet the above criteria as non-current.

B. Liabilities that meet one of the following criteria are classified as current liabilities; otherwise they are classified as non-current liabilities:
(a) Liabilities that are expected to be settle within the normal operating cycle;
(b) Liabilities arising mainly from trading activities;
(c) Liabilities that are to be settle within twelve months from the balance sheet date;
(d) Liabilities for which the repayment date cannot be extended unconditionally to more than twelve months after the balance sheet date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.
The Group classifies liabilities that do not meet the above criteria as non-current.

(6)Cash equivalents

Cash equivalents refer to short-term highly liquid investments that readily convert to known amount of cash and subject to an insignificant effect of value of changes in rate. Time deposits and money market fund that meet the definition above and are held for the purpose of meeting short-term cash commitments in operations are classified as cash equivalents.

(7)Financial assets at fair value through profit or loss

A. Financial assets at fair value through profit or loss are financial assets held for trading or financial assets designated as at fair value through profit or loss on initial recognition. Financial assets are classified in this category of held for

119

trading if acquired principally for the purpose of selling in the short-term. Derivatives are also categorized as financial assets held for trading unless they are designated as hedges.

B. On a regular way purchase or sale basis, financial assets at fair value through profit or loss are recognised and derecognised using trade date accounting.
C. Financial assets at fair value through profit or loss are initially recognised at fair value. Related transaction costs are expensed in profit or loss. These financial assets are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial assets are recognised in profit or loss.

(8) Receivables

  - Accounts receivable are receivables originated by the entity. They are created by the entity by selling goods or providing services to customers in the ordinary course of business. However, short-term accounts receivable without bearing interest are subsequently measured at initial invoice amount less provision for impairment as effect of discounting is immaterial.

(9)Impairment of financial assets
A. The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
B. The criteria that the Group uses to determine whether there is objective evidence of an impairment loss is as follows:
- (a) Significant financial difficulty of the issuer or debtor;
- (b) A breach of contract, such as a default or delinquency in interest or principal payments;
- (c) The Group, for economic or legal reasons relating to the borrower’s financial difficulty, granted the borrower a concession that a lender would not otherwise consider;
- (d) It becomes probable that the borrower will enter bankruptcy or other financial reorganization;
- (e) The disappearance of an active market for that financial asset because of financial difficulties;
- (f) Observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial asset in the group, including adverse changes in the payment status of borrowers in the group or national or local economic conditions that correlate with defaults on the assets in the group;
- (g) Information about significant changes with an adverse effect that have taken place in the technology, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment may not be recovered; or
- (h) A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.
C. When the Group assesses that there is objective evidence of impairment loss,

120

for financial assets at amortised cost, impairment losses is recognised as profit or loss, based on the difference between carrying amount of assets and present value of expected future cash flow which is discounted at initial effective interest rate. If, in a subsequent period, the amount of the impairment loss decreases and the decrease is objectively relevant with the event that occurred after recognition of impairment loss, the previously recognised impairment loss is reversed through profit or loss and limited to the carrying amount of the asset net of amortized cost that should be at the date of reversal before recognising impairment loss. The amounts of impairment loss recognised and reversed are used in adjusting the carrying amount of the asset through allowance account.

(10) Operating lease (lessor)

Lease income from an operating lease (net of any incentives given to the lessee) is recognised in profit or loss on a straight-line basis over the lease term.

(11)Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weighted-average method. The cost of finished goods and work-in-process comprises raw materials, other direct costs and related production overheads. The item-by-item approach is used in applying the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and applicable variable selling expenses.

(12) Investments accounted for using the equity method / associates

A. Associates are all entities over which the Group has significant influence but not control. In general, it is presumed that the investor has significant influence, if an investor holds, directly or indirectly 20 percent or more of the voting power of the investee. Investments in associates are accounted for using the equity method and are initially recognised at cost.
B. The Group’s share of its associates’ post-acquisition profits or losses is recognised in profit or loss, and its share of post-acquisition movements in other comprehensive income is recognized in other comprehensive income. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.
C. When changes in an associate’s equity that do not arise from in profit or loss or other comprehensive income of the associate and such changes do not affect the Group’s ownership percentage of the associate, the Group recognises in ‘capital surplus’ in proportion to its ownership.
D. In the case that an associate issues new shares and the Group does not subscribe or acquire new shares proportionately, which results in a change in the Group’s ownership percentage of the associate but maintains significant influence on the associate, then ‘capital surplus’ and ¶ investments accounted for under the equity method’ shall be adjusted for the increase or decrease of its share of equity interest. If the above condition causes a decrease in the Group’s ownership percentage of the associate, in addition to the above adjustment, the amounts previously recognised in other comprehensive income in relation to the associate are reclassified to profit or loss

121

proportionately on the same basis as would be required if the relevant assets or liabilities were disposed of.

E. Upon loss of significant influence over an associate, the Group remeasures any investment retained in the former associate at its fair value. Any difference between fair value and carrying amount is recognised in profit or loss.
F. When the Group disposes its investment in an associate, and loses significant influence over this associate, the amounts previously recognised in other comprehensive income in relation to the associate, are reclassified to profit or loss, on the same basis as would be required if the relevant assets or liabilities were disposed of. If it retains significant influence over this associate, the amounts previously recognised in other comprehensive income in relation to the associate are reclassified to profit or loss proportionately in accordance with the aforementioned approach.
G. When the Group disposes its investment in an associate, and loses significant influence over this associate, the amounts previously recognised as capital surplus in relation to the associate are transferred to profit or loss. If it retains significant influence over this associate, the amounts previously recognised as capital surplus in relation to the associate are transferred to profit or loss proportionately.

(13)Property, plant and equipment

A.Property, plant and equipment are initially recorded at cost. Borrowing costs incurred during the construction period are capitalised.
B. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.
C. Land is not depreciated. Other property, plant and equipment apply cost model and are depreciated using the straight-line method to allocate their cost over their estimated useful lives. Each part of an item of property, plant, and equipment with a cost that is significant in relation to the total cost of the item must be depreciated separately.
D. The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each balance sheet date. If expectations for the assets’ residual values and useful lives differ from previous estimates or the patterns of consumption of the assets’ future economic benefits embodied in the assets have changed significantly, any change is accounted for as a change in estimate under IAS 8, ‘Accounting Policies, Changes in Accounting Estimates and Errors’, from the date of the change. The estimated useful lives of property, plant and equipment are as follows:

Buildings

Machinery and equipment Other properties (include transportation equipment, office equipment, and leasehold improvements)

20~55 years 3~10 years 2~10 years

(14)Operating Lease (lessee)

Based on the terms of a lease contract, a lease is classified as an operating

122

lease if the lessee does not assumes substantially all the risks and rewards incidental to ownership of the leased asset. Lease income from an operating lease (net of any incentives given to the lessee) is recognised in profit or loss on a straight-line basis over the lease term.

(15)Investment property

An investment property is stated initially at its cost and measured subsequently using the cost model. Except for land, investment property is depreciated on a straight-line basis over its estimated useful life of 20 years.

(16)Impairment of non-financial assets

The Group assesses at each balance sheet date the recoverable amounts of those assets where there is an indication that they are impaired. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell or value in use. Except for goodwill, when the circumstances or reasons for recognizing impairment loss for an asset in prior years no longer exist or diminish, the impairment loss is reversed. The increased carrying amount due to reversal should not be more than what the depreciated or amortised historical cost would have been if the impairment had not been recognised.

(17)Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method.

(18)Notes and accounts payable

Notes and accounts payable are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. They are recognized initially at fair value. However, short-term accounts payable without bearing interest are subsequently measured at initial invoice amount as effect of discounting is immaterial.

(19)Financial liabilities at fair value through profit or loss

A. Financial liabilities at fair value through profit or loss are financial liabilities held for trading or financial liabilities designated as at fair value through profit or loss on initial recognition. Financial liabilities are classified in this category of held for trading if acquired principally for the purpose of repurchasing in the short-term. Derivatives are also categorized as financial liabilities held for trading unless they are designated as hedges.

B. Financial liabilities at fair value through profit or loss are initially recognised at fair value. Related transaction costs are expensed in profit or loss. These financial liabilities are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial liabilities are recognised in profit or loss.

(20)Provisions

Provisions (including warranties and contingent liabilities from business combinations, etc.) are recognised when the Group has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of economic resources will be required to settle the obligation and the amount of the obligation can be reliably estimated. Provisions are measured at

123

the present value of the expenditures expected to be required to settle the obligation on the balance sheet date, which is discounted using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the obligation. When discounting is used, the increase in the provision due to passage of time is recognised as interest expense. Provisions are not recognised for future operating losses.

(21) Employee benefits

A. Short-term employee benefits

Sort-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in respect of service rendered by employees before twelve months after the end of the annual reporting period, and should be recognized as expense in that period when the employees render service.

B. Pensions
(a) Defined contribution plans

For defined contribution plans, the contributions are recognised as pension expense when they are due on an accrual basis. Prepaid contributions are recognised as an asset to the extent of a cash refund or a reduction in the future payments.

(b) Defined benefit plans
i.Net obligation under a defined benefit plan is defined as the present value of an amount of pension benefits that employees will receive on retirement for their services with the Group in current period or prior periods. The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognised past service costs. The net defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The rate used to discount is determined by using interest rates of government bonds (at the balance sheet date).
ii. Remeasurement arising on defined benefit plans are recognised in other comprehensive income in the period in which they arise and are recorded as retained earnings.

iii. Past-servic costs are recognised immediately in profit or loss.

C. Termination benefits

Termination benefits are employee benefits provided in exchange for the termination of employment as a result from either the Group’s decision to terminate an employee’s employment before the normal retirement date, or an employee’s decision to accept an offer of redundancy benefits in exchange for

124

the termination of employment. The Group recognizes expense as it can no longer withdraw an offer of termination benefits or it recognises relating restructuring costs, whichever is earlier. Benefits that are expected to be due more than 12 months after balance sheet date shall be discounted to their present value.

D. Employees’ bonus and directors’ and supervisors’ remuneration

Employees’ remuneration and directors’ and supervisors’ remuneration are recognised as expense and liability, provided that such recognition is required under legal or constructive obligation and those amounts can be reliably estimated. Any difference between the resolved amounts and the subsequently actual distributed amounts is accounted for as changes in estimates. If employee compensation is distributed by shares, the Group calculates the number of shares based on the closing price at the previous day of the board meeting resolution.

(22) Income tax

A. The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or items recognised directly in equity, in which cases the tax is recognised in other comprehensive income or equity.
B. The current income tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in accordance with applicable tax regulations. It establishes provisions where appropriate based on the amounts expected to be paid to the tax authorities. An additional 10% tax is levied on the unappropriated retained earnings and is recorded as income tax expense in the year the stockholders resolve to retain the earnings.
C. Deferred income tax is recognised, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated balance sheet. However, the deferred income tax is not accounted for if it arises from initial recognition of goodwill or of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Group and it is

125

probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

D. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. At each balance sheet date, unrecognised and recognised deferred income tax assets are reassessed.
E. Current income tax assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. Deferred income tax assets and liabilities are offset on the balance sheet when the entity has the legally enforceable right to offset current tax assets against current tax liabilities and they are levied by the same taxation authority on either the same entity or different entities that intend to settle on a net basis or realise the asset and settle the liability simultaneously.

(23)Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or stock options are shown in equity as a deduction, net of tax, from the proceeds.

(24)Dividends

Dividends are recorded in the Company’s financial statements in the period in which they are approved by the Company’s shareholders. Cash dividends are recorded as liabilities.

(25)Revenue recognition

A. The Group manufactures and sells motherboards, graphic cards, a variety of computer hardware, and electronic components. Revenue is measured at the fair value of the consideration received or receivable net of value-added tax, returns and rebates for the sale of goods to external customers in the ordinary course of the Group’s activities. Revenue arising from the sales of goods should be recognized when the Group has delivered the goods to the customer, the amount of sales revenue can be measured reliably and it is probable that the future economic benefits associated with the transaction will flow to the entity. The delivery of goods is completed when the significant risks and rewards of ownership have been transferred to the customer, the Group retains neither continuing managerial involvement to the degree usually associated

126

with ownership nor effective control over the goods sold, and the customer has accepted the goods based on the sales contract or there is objective evidence showing that all acceptance provisions have been satisfied.

B. The Group offers customers right of return for defective products. The Group estimates such discounts and returns based on historical experience. Provisions for such liabilities are recorded when the sales are recognised.

(26)Operating segments

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker is responsible for allocating resources and assessing performance of the operating segments.

5.CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND KEY SOURCES OF ASSUMPTION UNCERTAINTY

The preparation of these consolidated financial statements requires management to make critical judgements in applying the Group’s accounting policies and make critical assumptions and estimates concerning future events. Assumptions and estimates may differ from the actual results and are continually evaluated and adjusted based on historical experience and other factors. The information is addressed below:

(1) Critical judgements in applying the Group’s accounting policies

None.

(2)Critical accounting estimates and assumptions

Evaluation of inventories

As inventories are stated at the lower of cost and net realisable value, the Group must determine the net realisable value of inventories on balance sheet date using judgements and estimates. Due to the rapid technology innovation, the Group evaluates the amounts of normal inventory comsumption, obsolete inventories or inventories without market selling value on balance sheet date, and writes down the cost of inventories to the net realisable value. Such an evaluation of inventories is principally based on the demand for the products within the specified period in the future. Therefore, there might be material changes to the evaluation. As of December 31, 2017, the carrying amount of inventories was $16,321,027.

127

6. DETAILS OF SIGNIFICANT ACCOUNTS

(1)Cash and cash equivalents

h and cash equivalents
Cash on hand and petty cash Checking accounts and demand deposits Time deposits	December31,2017 4,211 $ 7,675,545 2,417,143 10,096,899 $	December31,2016
		5,322 $ 7,890,956 4,371,308
		12,267,586 $

(2)	A. The Group transacts with a variety of financial institutions all with high credit quality to disperse credit risk, so it expects that the probability of counterparty default is remote. B. As of December 31, 2017 and 2016, cash and cash equivalents amounting to $36,520 and $2,308, were pledged to others as collateral and classified as other financial assets, respectively. Financial assets and liabilities at fair value through profit or loss-current Financial assetsheldfor trading December31,2017 Stock of publicly traded or listed companies - $ Valuation adjustment of financial assets held for trading - Non-hedging derivatives - Forward exchange contract 350 Foreign exchange swap 20,566 Total 20,916 $ Financial liabilitiesheldfor trading December31,2017 Non-hedging derivatives - Forward exchange contract $24,448	A. The Group transacts with a variety of financial institutions all with high credit quality to disperse credit risk, so it expects that the probability of counterparty default is remote. B. As of December 31, 2017 and 2016, cash and cash equivalents amounting to $36,520 and $2,308, were pledged to others as collateral and classified as other financial assets, respectively. Financial assets and liabilities at fair value through profit or loss-current Financial assetsheldfor trading December31,2017 Stock of publicly traded or listed companies - $ Valuation adjustment of financial assets held for trading - Non-hedging derivatives - Forward exchange contract 350 Foreign exchange swap 20,566 Total 20,916 $ Financial liabilitiesheldfor trading December31,2017 Non-hedging derivatives - Forward exchange contract $24,448	December31,2016 105,212 $ 331 63,686 - 169,229 $ December31,2016 1,430 $
		Financial assetsheldfor trading Stock of publicly traded or listed companies Valuation adjustment of financial assets held for trading Non-hedging derivatives - Forward exchange contract Foreign exchange swap Total Financial liabilitiesheldfor trading Non-hedging derivatives - Forward exchange contract

A. The Group recognised net (loss) gain of ($60,099) and $128,509 on financial assets held for trading for the years ended December 31, 2017 and 2016, respectively.

B. The non-hedging derivative instrument transactions and contract information are as follows:

128

December 31, 2017

	December	31,2017
DerivativeFinancial Assets	Contract Amount Notional Principal (In thousands) JPY 224,100 RUB 57,575 GBP 1,100 USD 145,000 Contract Amount Notional Principal (In thousands) RUB 352,359 EUR 42,000 GBP 5,000 CAD 4,000 AUD 3,500 December	Contractperiod
Forward exchange contracts · · Foreign exchange swap DerivativeFinancial Liabilities		2017.11.22~2018.02.01 2017.12.27~2018.01.10 2017.10.26~2018.01.24 2017.09.29~2018.03.16 Contractperiod
Forward exchange contracts · · · · DerivativeFinancial Assets		2017.11.23~2018.02.08 2017.09.29~2018.03.08 2017.10.26~2018.02.14 2017.12.05~2018.02.26 2017.12.13~2018.03.08 31,2016
	Contract Amount Notional Principal (In thousands) JPY 329,039 EUR 30,000 CAD 4,000 GBP 3,000 AUD 2,700 Contract Amount Notional Principal (In thousands) EUR 7,000 GBP 600	Contractperiod
Forward exchange contracts · · · · DerivativeFinancial Liabilities		2016.10.31~2017.02.02 2016.10.03~2017.02.24 2016.11.09~2017.02.24 2016.11.09~2017.02.08 2016.10.31~2017.01.17 Contractperiod
Forward exchange contracts ·		2016.12.16~2017.02.24 2016.12.27~2017.01.09

The Group entered into forward foreign exchange contracts to hedge exchange risk. However, these forward foreign exchange contracts are not accounted for under hedge accounting.

3. Accounts receivable

Accounts receivable Less: Allowance for doubtful accounts (	December31,2017 15,125,954 $ 17,851) ( 15,108,103 $	December31,2016 14,269,940 $ 165,739) 14,104,201 $

A. Most of the Group’s accounts receivable have been insured, and the

Group will be able to obtain insurance claims in case these accounts

129

default.

B. The Group’s accounts receivable that were neither past due nor impaired were fully performing in line with the credit standards prescribed based on counterparties’ industrial characteristics, scale of business and profitability.
C. The ageing analysis of accounts receivable that were past due but not impaired is as follows:

impaired is as follows:
		December31,2017			December		31,2016
1 - 75 days		$	3,235,573		$	2,244,916
The above ageing analysis was based on past due date.
D. Movement analysis of financial assets that were impaired is as				follows:
Group provision		2017				2016
At January 1	$		165,739	$			292,406
Reversal of impairment	(		19,065)	(			62,026)
Write-offs during the period	(		128,855)	(			64,435)
Effects of foreign exchange			32	(			206)
At December 31	$		17,851	$			165,739

E. The Group does not hold any collateral as security.

(4) Inventories

ories
Raw material Work-in-process Finished goods Raw material Work-in-process Finished goods		December 31,2017
	Cost 4,688,293 $ 702,826 11,269,390 16,660,509 $	Allowance for valuation loss 109,315) ($ 289) ( 229,878) ( 339,482) ($ December 31,2016	Bookvalue
			4,578,978 $ 702,537 11,039,512
			16,321,027 $

	Cost 3,508,264 $ 1,177,395 12,183,580 16,869,239 $		Bookvalue
			3,398,769 $ 1,176,682 11,945,279
			16,520,730 $

The cost of inventories recognised as expense for the period:

Cost of inventories recognised as expense (Gains) losses on decline or reversal in market value	2017	2016
	91,388,612 $ 7,199) (	87,238,833 $ 9,800

130

The Group recognised a reduction in costs of sales as a result of reversal of

net realizable value from sale of inventories that were provisioned losses in market value decline in 2017.

(5)Prepayments

ments
Office supplies Overpaid tax for offsetting the future tax Office supplies Prepayment for goods Others	December31,2017 676,566 $ 323,257 136,063 156,842 1,292,728 $	December31,2016
		660,082 $ 249,370 38,236 199,720
		1,147,408 $

(6)Property, plant and equipment

At January 1, 2017
Cost
Accumulated depreciation
2017
Balance at January 1
Additions
Reclassifications
Disposals
Depreciation charge
Net exchange differences
(
Balance at December 31
At December 31, 2017
Cost
Accumulated depreciation

Land
Buildings
Machineries
Others
Total
1,467,204
$ 5,540,609
$ 4,620,658
$ 1,727,107
$ 13,355,578
$ -
3,105,622)
(
3,797,492)
(
1,360,072)
(
8,263,186)
(
1,467,204
$ 2,434,987
$ 823,166
$ 367,035
$ 5,092,392
$ 1,467,204
$ 2,434,987
$ 823,166
$ 367,035
$ 5,092,392
$ - 93,785 318,109
225,684
637,578
- ( 46,433) -
17,217)
(
63,650)
(
-
-
( 445)
3,807)
(
4,252)
(
- ( 206,202) ( 211,813)
114,100)
(
532,115)
(
208)

17,345)
(
18,612)
(
5,986)
(
42,151)
(
1,466,996
$ 2,258,792
$ 910,405
$ 451,609
$ 5,087,802
$ 1,466,996
$ 5,490,977
$ 4,502,339
$ 1,786,429
$ 13,246,741
$ -
3,232,185)
(
3,591,934)
(
1,334,820)
(
8,158,939)
(
1,466,996
$ 2,258,792
$ 910,405
$ 451,609
$ 5,087,802
$

131

At January 1, 2016
Cost
Accumulated depreciation
2016
Balance at January 1
Additions
Reclassifications
Disposals
Depreciation charge
Net exchange differences
(
Balance at December 31
At December 31, 2016
Cost
Accumulated depreciation

Land
Buildings
Machineries
Other
Total
1,472,784
$ 5,974,148
$ 5,366,483
$ 1,893,215
$ 14,706,630
$ -
3,166,343)
(
4,593,747)
(
1,514,086)
(
9,274,176)
(
1,472,784
$ 2,807,805
$ 772,736
$ 379,129
$ 5,432,454
$ 1,472,784
$ 2,807,805
$ 772,736
$ 379,129
$ 5,432,454
$ - 24,493 277,410
131,006
432,909
- ( 39,226) 7,059
9,012)
(
41,179)
(
- ( 652) ( 934)
3,935)
(
5,521)
(
- ( 214,638) ( 186,286)
107,848)
(
508,772)
(
5,580)

142,795)
(
46,819)
(
22,305)
(
217,499)
(
1,467,204
$ 2,434,987
$ 823,166
$ 367,035
$ 5,092,392
$ 1,467,204
$ 5,540,609
$ 4,620,658
$ 1,727,107
$ 13,355,578
$ -
3,105,622)
(
3,797,492)
(
1,360,072)
(
8,263,186)
(
1,467,204
$ 2,434,987
$ 823,166
$ 367,035
$ 5,092,392
$

For the amount of borrowing costs capitalised as part of property, plant and equipment, please refer to Note 8.

(7) Investment property

ent property
			Buildings
January 1, 2017
Cost		$	862,379
Accumulated depreciation	(		517,721)
		$	344,658
2017
Balance at January 1		$	344,658
Reclassifications			46,291
Depreciation charge	(		48,542)
Net exchange differences	(		4,515)
Balance at December 31		$	337,892
December 31, 2017
Cost		$	957,443
Accumulated depreciation	(		619,551)
		$	337,892

132

			Buildings
January 1, 2016
Cost		$	873,908
Accumulated depreciation	(		505,811)
		$	368,097
2016
Balance at January 1		$	368,097
Addition			18,039
Reclassifications			32,572
Depreciation charge	(		43,681)
Net exchange differences	(		30,369)
Balance at December 31		$	344,658
December 31, 2016
Cost		$	862,379
Accumulated depreciation	(		517,721)
		$	344,658

A. Rental income from the lease of the investment and direct operating

expenses arising from the investment property:

Rental income from the lease of the investment property Direct operating expenses arising from the investment property		2017	2016
		82,274 $ 62,438 $	74,898 $ 52,432 $

B. As of December 31, 2017 and 2016, the fair value of the Group’s investments in property amounting to $1,379,037 and $1,104,117,

respectively, as derived from market prices in the nearby area, are included in Level 2.

(8)Long-term prepaid rents (shown as ‘Other non-current assets’)

Land use right Land use right	December31,2017 92,600 $	December31,2016
		102,756 $

A subsidiary of the Group signed a land use right contract with the Ministry of Land and Resources of the People's Republic of China for the use of the land at Kunshan City and Shenzhen City with a term of 50 years. The Group recognized rental expenses of $8,884 and $9,812 for the years ended December 31, 2017 and 2016, respectively.

133

(9) Other payables

ayables
Accrued salary and bonus Directors' and supervisors' remuneration and employees' bonus Accrued freight Advertising expenses payable Accrued molding expense Other accrued expenses	December31,2017 1,363,045 $ 490,900 433,492 243,872 186,854 772,424 3,490,587 $	December31,2016
		1,359,303 $ 478,700 515,299 294,015 224,163 879,171
		3,750,651 $

- (10)Long term borrowings

	Borrowing period and
Type ofborrowings	repayment term	Interest raterange	Collateral December		31,2017
Long-term bank
borrowings
Secured	Starting from March	Three month	Land and	$	17,614
borrowings	24, 2016 to March 24,	LIBOR plus	Building
	2021, repayment of	1.75%
	principal and interest of
	USD 4,307.77 monthly
	and remaining principal
	on the due date.
Less: current portion				(	972)
				$	16,642
	Borrowing period and
Type ofborrowings	repayment term	Interest raterange	Collateral December		31,2016
Long-term bank
borrowings
Secured	Starting from March	Three month	Land and	$	20,176
borrowings	24, 2016 to March 24,	LIBOR plus	Building
	2021, repayment of	1.75%
	principal and interest of
	USD 4,307.77 monthly
	and remaining principal
	on the due date.
Less: current portion				(	1,119)
				$	19,057

(11)Pensions

A.(a) The Company has a defined benefit pension plan in accordance with the Labor Standards Law,

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covering all regular employees’ service years prior to the enforcement of the Labor Pension Act on July 1, 2005 and service years thereafter of employees who chose to continue to be subject to the pension mechanism under the Law. Under the defined benefit pension plan, two units are accrued for each year of service for the first 15 years and one unit for each additional year thereafter, subject to a maximum of 45 units. Pension benefits are based on the number of units accrued and the average monthly salaries and wages of the last 6 months prior to retirement. The Company and its domestic subsidiaries contribute monthly an amount equal to 2% of the employees’ monthly salaries and wages to the retirement fund deposited with Bank of Taiwan, the trustee, under the name of the independent retirement fund committee. Also, the Company and its domestic subsidiaries would assess the balance in the aforementioned labor pension reserve account by December 31, every year. If the account balance is insufficient to pay the pension calculated by the aforementioned method to the employees expected to qualify for retirement in the following year, the Company and its domestic subsidiaries will make contributions for the deficit by next March. (b) The amounts recognised in the balance sheet are as follows:

(c) Movements in net defined benefit liabilities are as follows: December31,2017 December31,2016 Present value of defined benefit obligations 470,631 $ 425,511 $ Fair value of plan assets 267,874) ( 253,717) ( Net defined benefit liability 202,757 $ 171,794 $ Present value of defined benefit obligations Fair value of plan assets Net defined benefit liability Year ended December 31, 2017 Balance at January 1 425,511 $ 253,717) ($ 171,794 $ Current service cost 2,403 - 2,403 Interest (expense) income 6,383 3,806) ( 2,577 434,297 257,523) ( 176,774 Remeasurements: Return on plan assets (excluding amounts included in interest income or expense) - 1,186 1,186 Change in financial assumptions 20,250 - 20,250 Experience adjustments 16,084 - 16,084 36,334 1,186 37,520 Pension fund contribution - 11,537) ( 11,537) ( Balance at December 31 470,631 $ 267,874) ($ 202,757 $	December31,2017	December31,2016	December31,2016	December31,2016
		$		425,511 253,717) 171,794 Net defined benefit liability
		$

425,511 $ 2,403 6,383 434,297 - 20,250 16,084 36,334 - 470,631 $	253,717) ($ - 3,806) ( 257,523) ( 1,186 - - 1,186 11,537) ( 267,874) ($		(	171,794 $ 2,403 2,577 176,774 1,186 20,250 16,084 37,520 11,537) 202,757 $

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Year ended December 31, 2016 Balance at January 1 Current service cost Interest (expense) income Remeasurements: Return on plan assets (excluding amounts included in interest income or expense) Change in financial assumptions Experience adjustments Pension fund contribution Paid pension Balance at December 31	(	Present value of defined benefit obligations	Fair value of plan assets		Net defined benefit liability
		399,299 $ 3,269 6,788 409,356 - 9,786 9,465 19,251 - 3,096) 425,511 $	243,081) ($ - 4,132) ( 247,213) ( 1,878 - - 1,878 11,478) ( 3,096 253,717) ($	156,218 $ 3,269 2,656 162,143 1,878 9,786 9,465 21,129 11,478) ( - 171,794 $

(d) The Bank of Taiwan was commissioned to manage the Fund of the Company’s and domestic subsidiaries’ defined benefit pension plan in accordance with the Fund’s annual investment and utilisation plan and the “Regulations for Revenues, Expenditures, Safeguard and Utilisation of the Labor Retirement Fund” (Article 6: The scope of utilisation for the Fund includes deposit in domestic or foreign financial institutions, investment in domestic or foreign listed, over-the-counter, or private placement equity securities, investment in domestic or foreign real estate securitization products, etc.). With regard to the utilisation of the Fund, its minimum earnings in the annual distributions on the final financial statements shall be no less than the earnings attainable from the amounts accrued from two-year time deposits with the interest rates offered by local banks. If the earnings is less than aforementioned rates, government shall make payment for the deficit after being authorized by the Regulator. The Company and domestic subsidiaries have no right to participate in managing and operating that fund and hence the Company and domestic subsidiaries are unable to disclose the classification of plan assets fair value in accordance with IAS 19 paragraph 142. The composition of fair value of plan assets as of December 31, 2017 and 2016 is given in the Annual Labor Retirement Fund Utilisation Report announced by the government.

(e) The principal actuarial assumptions used were as follows:

Assumptions regarding future mortality experience are set based on 2017 2017 Discount rate 1.10% 1.50% Future salary increases 2.75% 2.75%		2017	2017

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actuarial advice in accordance with published statistics and experience in each territory.

Because the main actuarial assumption changed, the present value of defined benefit obligation is affected. The analysis was as follows:

The sensitivity analysis above is based on one assumption which changed while the other conditions remain unchanged. In practice, more than one assumption may change all at once. The method of analysing sensitivity and the method of calculating net pension liability in the balance sheet are the same. Increase 0.25% Decrease 0.25% Increase 0.25% Decrease 0.25% December 31, 2017 Effect on present value of defined benefit obligation 12,806) ($ 13,326 $ 11,901 $ 11,517) ($ December 31, 2016 Effect on present value of defined benefit obligation 12,812) ($ 12,695 $ 11,444 $ 11,507) ($ Discount rate Future salaryincreases	Discount rate	Discount rate	Future salaryincreases	Future salaryincreases
	Increase 0.25%	Decrease 0.25%	Increase 0.25%	Decrease 0.25%
				11,517) ($ 11,507) ($

The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous period.

(f) Expected contributions to the defined benefit pension plans of the

Group for the year ending December 31, 2018 amount to $11,478.

(g) As of December 31, 2017, the weighted average duration of the retirement plan is 12 years. The analysis of timing of the future pension payment was as follows:

Within 1 year 1-2 year(s) 2-3 years 3-4 years 4-5 years 6-10 years Over 10 years	35,281 $ 20,200 21,450 22,757 26,765 106,739 300,308
	533,500 $

B. (a) Effective July 1, 2005, the Company and its domestic subsidiaries have established a defined

contribution pension plan (the “New Plan”) under the Labor Pension Act (the “Act”), covering all regular employees with R.O.C. nationality. Under the New Plan, the Company and its domestic subsidiaries contribute monthly an amount based on 6% of the employees’ monthly salaries and wages to the employees’ individual pension accounts at the Bureau of Labor Insurance. The benefits accrued are paid monthly or in

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lump sum upon termination of employment.

(b) The Company’s mainland China subsidiaries have a defined contribution plan. Monthly contributions to an independent fund administered by the government in accordance with the pension regulations in the People’s Republic of China (PRC) are based on certain percentage of employees’ monthly salaries and wages. Other than the monthly contributions, the Group has no further obligations.

(c) The pension costs under defined contribution pension plans of the Group for the years ended December 31, 2017 and 2016, were $251,304 and $286,044, respectively.

(12) Provisions for liabilities

Warranty			2017			2016
At January 1		$	310,738		$	230,015
Additional provisions			727,368			721,528
Used during the period	(		583,363)	(		640,782)
Exchange differences			1	(		23)
At December 31		$	454,744		$	310,738
Analysis of total provisions:
		December31,2017			December31,2016
Current		$	454,744		$	310,738

The Group gives warranties on computer components and personal computers sold. Provision for warranty is estimated based on historical warranty data.

(13)Share capital

As of December 31, 2017, the Company’s authorized capital was $15,000,000 (including 80,000 thousand shares reserved for employee stock options and 150,000 thousand shares reserved for convertible bonds issued by the Company), and the paid-in capital was $8,448,562 with a par value of $10 (in dollars) per share. All proceeds from shares issued have been collected.

(14) Capital surplus

A. Pursuant to the R.O.C. Company Act, capital surplus arising from paid-in capital in excess of par value on issuance of common stocks and donations can be used to cover accumulated deficit or to issue new stocks or cash to shareholders in proportion to their share ownership, provided that the Company has no accumulated deficit. Further, the R.O.C. Securities and Exchange Law requires that the amount of capital surplus to be capitalised

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mentioned above should not exceed 10% of the paid-in capital each year. Capital surplus should not be used to cover accumulated deficit unless the legal reserve is insufficient.

B. On June 15, 2017 and June 16, 2016, the appropriation of cash dividends from capital surplus had been resolved by stockholders during their meeting as follows:

2016 2015 Dividends per Dividends per Amount share (dollar) Amount share (dollar) Cash dividends from capital surplus $ 844,856 $ 1.00 $ 844,856 $ 1.00 The appropriation of cash dividends from capital surplus is the same as the appropriation resolved by the Board of Directors during their meeting.

(15)Retained earnings

A. Under the Company's Articles of Incorporation, the current year's earnings, if any, shall first be used to pay all taxes and offset prior year's operating losses, then 10% of the remaining amount shall be set aside or reversed as legal reserve. The balance plus unappropriated retained earnings at the beginning of the period shall be appropriated 10%~90% as proposed by the Board of Directors and resolved by the stockholders during their meeting.
B. The Company’s dividend policy is summarized below: as the Company operates in a volatile business environment and is in the stable growth stage, except for the Company’s future expansion plans, stockholders’ interest is taken into consideration. The Group appropriated dividends in proportion to total number of shares, dividends could be distributed in stock or cash, and cash dividends shall account for at least 30% of the total dividends distributed.
C. Except for covering accumulated deficit or issuing new stocks or cash to shareholders in proportion to their share ownership, the legal reserve shall not be used for any other purpose. The use of legal reserve for the issuance of stocks or cash to shareholders in proportion to their share ownership is permitted, provided that the distribution of the reserve is limited to the portion in excess of 25% of the Company’s paid-in capital.
D. (a)In accordance with the regulations, the Company shall set aside special reserve from the debit
balance on other equity items at the balance sheet date before distributing earnings. When debit balance on other equity items is reversed subsequently, the reversed amount could be included in the distributable earnings.

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(b)The amounts previously set aside by the Company as special reserve on initial application of IFRSs in accordance with Jin-Guan-Zheng-Fa-Zi Letter No. 1010012865, dated April 6, 2012, shall be reversed proportionately when the relevant assets are used, disposed of or reclassified subsequently. Such amounts are reversed upon disposal or reclassified if the assets are investment property of land, and reversed over the use period if the assets are investment property other than land.

E. The appropriations of 2016 and 2015 earnings had been resolved at the stockholders’ meeting on June 15, 2017 and June 16, 2016, respectively as follows:

s:
Legal reserve Cash dividend	Amount Dividends per share (dollar) 488,794 $ 2,956,997 3.50 $ 2016	Amount Dividends per share (dollar) 370,645 $ 2,112,140 2.50 $ 2015
	Amount 488,794 $ 2,956,997	Amount 370,645 $ 2,112,140
			2.50 $

The appropriation of 2016 earnings as approved by the stockholders is the same as with the appropriation resolved by the Board of Directors during its meeting on May 4, 2017. Information about earnings appropriation of the Company as resolved by Board of Directors will be posted in the “Market Observation Post System” at the website of the Taiwan Stock Exchange.

F. For the information relating to employees’ compensation (bonuses) and directors’ and supervisors’ remuneration, please refer to Note 6(19).
(16)Other income

income
Interest income Rental revenue Others Total		2017		2016
		69,944 $ 82,423 233,908 386,275 $		77,218 $ 74,898 226,846 378,962 $

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(17)Other gains and losses

gains and losses	gains and losses	gains and losses
nses by nature Gains on financial assets at fair value through profit or loss Losses on financial liabilities at fair value through profit or loss Net currency exchange gains (losses) Losses on disposal of property, plant and equipment Other losses Total			2017			2016
			84,792 $ 144,891) ( 53,480 933) ( 10,478) ( 18,030) ($			193,060 $ 64,551) ( 125,688) ( 1,965) ( 74,011) ( 73,155) ($
By function By nature	2017					2016
	Operatingcosts	OperatingExpense		Total	Operatingcosts		OperatingExpense	Total
Employee benefit expense	1,938,468 $	4,813,993 $		6,752,461 $	2,193,445 $		4,779,589 $	6,973,034 $
Depreciation charges on property, plant and equipment	382,210	149,905		532,115	355,267		153,505	508,772
Amortized charges	7,905	1,229		9,134	8,513		1,327	9,840
oyee benefit expense Wages and salaries Labor and health insurance fees Pension costs Other personnel expenses			2017			2016 6,131,431 $ 310,942 291,969 238,692 6,973,034 $
			5,871,129 $ 356,710 256,284 268,338 6,752,461 $

(18)Expenses by nature

(19)Employee benefit expense

A. According to the Articles of Incorporation of the Company, a ratio of distributable profit of the current year, after covering accumulated losses, shall be distributed as employees' compensation and directors’ and supervisors’ remuneration. The ratio shall be 6%~10% for employees’ compensation and shall not be higher than 1% for directors’ and supervisors’ remuneration.
B. For the years ended December 31, 2017 and 2016, employees’ compensation (bonus) was accrued at $448,000 and $438,000, respectively; while directors’ and supervisors’ remuneration was accrued at $42,900 and $40,700, respectively. The aforementioned amounts were recognised in salary expenses and other expenses, respectively.

The employees’ compensation and directors’ and supervisors’

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remuneration were estimated and accrued based on distributable profit of the current year for the year ended December 31, 2017.

Employees’ compensation and directors’ and supervisors’ remuneration of 2016 as resolved at the meeting of Board of Directors were in agreement with those amounts recognised in the 2016 financial statements.

Information about employees’ compensation (bonus) and directors’ and supervisors’ remuneration of the Company as resolved by the Board of Directors and shareholders will be posted in the “Market Observation Post System” at the website of the Taiwan Stock Exchange.

(20) Income tax

A. Income tax expense
(a) Components of income tax expense:

onents of income tax expense:
Current tax: Current tax on profits for the period Prior year income tax (over) underestimation Total current tax Deferred tax: Origination and reversal of temporary differences Income tax expense		2017		2016
		1,065,171 $ 23,489) ( 1,041,682 552) ( 1,041,130 $		944,474 $ 26,017 970,491 36,261) ( 934,230 $

(b) The income tax (charge)/credit relating to components of other comprehensive income:

(c) The income tax charged/(credited) to equity during the period: None. econciliation between income tax expense and accounting profit 2017 2016 Remeasurement of defined benefit obligations $ 6,378 $ 3,592 2017 2016 Tax calculated based on profit before tax and statutory tax rate 1,120,233 $ 1,031,970 $ Effect from items diallowed by tax regulation 7,970) ( 79,034) ( Effect from investment tax credits 190,105) ( 164,985) ( Prior year income tax (over) underestimation 23,489) ( 26,017 Additional 10% tax on undistributed earnings 142,461 120,262 Income tax expense 1,041,130 $ 934,230 $		2017	2016

B. Reconciliation between income tax expense and accounting profit

Note: The basis for computing the applicable tax rate are the rates

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applicable in the respective countries where the Group entities operate.

C. Amounts of deferred tax assets or liabilities as a result of temporary differences, tax losses and investment tax credits are as follows:

Temporary differences: -Deferred tax assets: Unrealized gross profit Loss on inventory Allowance for bad debts Remeasurement of defined benefit obligations Adjustment to unused paid annual leave Unrealized losses on forward exchange contract Others Subtotal -Deferred tax liabilities: Unrealised exchange gain Unrealized gains on forward exchange contract Others Subtotal Total			2017	2017	2017
		January1	Recognised in profitor loss		Recognised in other comprehensive income		December 31
	194,038 $ 68,894 3,019 17,280 4,942 - 55,147 343,320 8,105) ( 10,583) ( 510) ( 19,198) ( 324,122 $		31,437) ($ 8,888) ( 1,858) ( - - 600 39,904 1,679) ( 8,147) ( 10,583 205) ( 2,231 552 $		- $ - - 6,378 - - - 6,378 - - - - 6,378 $	162,601 $ 60,006 1,161 23,658 4,942 600 95,051 348,019 16,252) ( - 715) ( 16,967) ( 331,052 $

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2016

Temporary differences: -Deferred tax assets: Unrealized gross profit Loss on inventory Allowance for bad debts Unrealized exchange gain Remeasurement of defined benefit obligations Adjustment to unused paid annual leave Others Tax losses Subtotal -Deferred tax liabilities: Unrealised exchange loss Unrealized losses on forward exchange contract Others Subtotal Total		January1	Recognised in profitor loss		Recognised in other comprehensive income		December 31
	105,165 $ 63,265 27,748 21,733 13,688 4,958 46,615 3,261 286,433 - 2,164) ( - 2,164) ( 284,269 $		88,873 $ 5,629 24,729) ( 21,733) ( - 16) ( 8,532 3,261) ( 53,295 8,105) ( 8,419) ( 510) ( 17,034) ( 36,261 $		- $ - - - 3,592 - - - 3,592 - - - - 3,592 $	194,038 $ 68,894 3,019 - 17,280 4,942 55,147 - 343,320 8,105) ( 10,583) ( 510) ( 19,198) ( 324,122 $

D. The Company has not recognised taxable temporary differences associated with investment in subsidiaries as deferred tax liabilities. As of December 31, 2017 and 2016, the amounts of temporary difference unrecognised as deferred tax liabilities were $4,290,328 and $4,116,592, respectively.
E. The Company’s income tax returns through 2014 have been assessed and approved by the Tax Authority.
F. With the abolishment of the imputation tax system under the amendments to the Income Tax Act promulgated by the President of the Republic of China in February, 2018, the information on unappropriated retained earnings and the balance of the imputation credit account as of December 31, 2017, as well as the estimated creditable tax rate for the year ended December 31, 2017 is no longer disclosed.

Unappropriated retained earnings on December 31, 2016

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Earnings generated in and before 1997 Earnings generated in and after 1998	December31,2016
	108,787 $ 12,707,428
	12,816,215 $

G. As of December 31, 2016, the balance of the imputation tax credit account was $1,490,030. The creditable tax rate was 14.68% for 2016.

(21)Earnings per share

Basic earnings per share Profit attributable to ordinary shareholders of the parent Diluted earnings per share Profit attributable to ordinary shareholders of the parent Assumed conversion of all dilutive potential ordinary shares Employee bonus Profit attributable to ordinary shareholders of the parent plus assumed conversion of all dilutive potential ordinary shares	Retroactively adjusted weighted-average outstanding ordinaryEarnings per share Amount after tax shares (in thousands) (inNTdollars) 4,937,422 $ 844,856 5.84 $ 4,937,422 $ 844,856 - 7,363 4,937,422 $ 852,219 5.79 $ 2017

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2016

Basic earnings per share Profit attributable to ordinary shareholders of the parent Diluted earnings per share Profit attributable to ordinary shareholders of the parent Assumed conversion of all dilutive potential ordinary shares Employee bonus Profit attributable to ordinary shareholders of the parent plus assumed conversion of all dilutive potential ordinary shares	Retroactively adjusted weighted-average outstanding ordinaryEarnings per share Amount after tax shares (in thousands) (inNTdollars) 4,887,942 $ 844,856 5.79 $ 4,887,942 $ 844,856 - 7,862 4,887,942 $ 852,718 5.73 $

7. RELATED PARTY TRANSACTIONS

(1)Names of related parties and relationship

None.

(2)Significant related party transactions

None.

(3) Key management compensation

2017 2016 Salaries and other employee benefits $ 307,645 $ 276,654

8. PLEDGED ASSETS

The Company’s assets pledged as collateral are as follows:

Book value

Pledgedasset Other non-current assets - Other financial assets Property, plant and equipment	December 31, 2017 36,520 $ 133,718 170,238 $	December 31, 2016 2,308 $ 145,586 147,894 $	Purpose
			Performance security guarantee For guarantee of long-term loans

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9. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNISED

CONTRACT COMMITMENTS

(1) Contingencies ¸ None.
(2) Commitments ¸ None.
SIGNIFICANT DISASTER LOSS None.
SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE

Under the amendments to the Income Tax Act which was promulgated by the President of the Republic of China in February, 2018, the Company’s applicable income tax rate will be raised from 17% to 20% effective from January 1, 2018. This will increase the Company’s deferred tax assets and deferred tax liabilities by $24,314 and $2,868, respectively, which will be adjusted in the first quarter of 2018.

12. OTHERS

(1) Capital management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. sheet plus net debt.

(2)Financial instrument

A. Fair value information of financial instruments

Except for those listed in the table below, the carrying amounts of the Group’s financial instruments not measured at fair value (including notes receivable, accounts receivable, other receivables, short-term loans, notes payable, accounts payable, other payables and guarantee deposit received) are approximate to their fair values. The fair value information of financial instruments measured at fair value is provided in Note 12(3).

B. Financial risk management policies

The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial position and financial performance.

C. Significant financial risks and degrees of financial risks (a)Market risk

Foreign exchange risk

i. The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations.
ii. Management has set up a policy to require group companies to manage their foreign exchange risk against their functional currency.

iii. The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk.

iv. The Group’s businesses involve some non-functional currency

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operations. The information on assets and liabilities denominated in foreign currencies whose values would be materially affected by the exchange rate fluctuations is as follows:

December 31, 2017

(Foreign currency: functionalcurrency) Financial assets Monetary items USD: NTD EUR: NTD RMB:NTD GBP: NTD RUB: NTD Financial liabilities Monetary items USD: NTD USD: RMB	Foreign Currency (In Thousands) 330,436 $ 41,733 205,989 5,697 416,553 466,801 37,746	Exchangerate 29.7600 35.5700 4.5650 40.1100 0.5167 29.7600 6.5192	Book Value (NTD)
			9,833,771 $ 1,484,442 940,340 228,503 215,233 13,891,992 1,123,329

(Foreign currency: functionalcurrency) Financial assets Monetary items USD: NTD EUR: NTD RMB:NTD RUB: NTD USD: RMB USD: EUR Financial liabilities Monetary items USD: NTD USD: RMB RMB: NTD		December31,2016	December31,2016
	Foreign Currency (In Thousands) 332,082 $ 34,915 170,202 694,240 11,377 6,904 492,312 34,968 158,362	Exchangerate 32.2500 33.9000 4.6170 0.5317 6.9851 0.9513 32.2500 6.9851 4.6170	Book Value (NTD)
			10,709,645 $ 1,183,619 785,823 369,127 366,908 222,654 15,877,062 1,127,718 731,157

v. The exchange gain (loss) arising from significant foreign exchange variation on the monetary items held by the Group for the years ended December 31, 2017 and 2016, amounted to $53,480 and ($125,688), respectively.
vi. Analysis of foreign currency market risk arising from significant foreign exchange variation:

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2017


	Degree of variation		Effect on profit or loss (beforetax)
	1% 1% 1% 1% 1% 1% 1%		98,338 $ 14,844 9,403 2,285 2,152 138,920 11,233 2016
		Sensitivityanalysis
Degree of variation		Effect on profit or loss (beforetax)
1% 1% 1% 1% 1% 1% 1% 1% 1%		107,096 $ 11,836 7,858 3,691 3,669 2,227 158,771 11,277 7,312

Interest rate risk

i. The Group’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk which is partially offset by cash and cash equivalents held at variable rates. For the years ended December 31, 2017 and 2016, the Group borrowings are issued at variable rate denominated in US dollars.
ii. The Group analyses its interest rate exposure on a dynamic basis. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions, alternative financing

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and hedging. Based on these scenarios, the Group calculates the impact on profit and loss of a defined interest rate shift. For each simulation, the same interest rate shift is used for all currencies. The scenarios are run only for liabilities that represent the major interest-bearing positions.

iii. At December 31, 2017 and 2016, if interest rates on USD and NTD denominated borrowings had been 1% higher/lower with all other variables held constant, post-tax profit for the years ended December 31, 2017 and 2016 would have been $176 and $202 lower/higher, respectively, mainly as a result of higher/lower interest expense on floating rate borrowings.

(b) Credit risk

i. Credit risk refers to the risk of financial loss to the Group arising from default by the clients or counterparties of financial instruments on the contract obligations. According to the Group’s credit policy, each local entity in the Group is responsible for managing and analysing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. Internal risk control assesses the credit quality of the customers, taking into account their financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the Board of Directors. The utilisation of credit limits is regularly monitored. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables.
ii. For the years ended December 31, 2017 and 2016, no credit limits were exceeded during the reporting periods, and management does not expect any significant losses from non-performance by these counterparties.
iii. For the credit quality information of financial assets that are neither past due nor impaired please refer to Note 6.
iv. The individual analysis of financial assets that had been impaired is provided in the statement for each type of financial assets in Note 6.
(c) Liquidity risk
i. Cash flow forecasting is performed in the operating entities of the Group and aggregated by Group treasury. Group treasury monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Group does not breach borrowing limits or covenants on any of its borrowing facilities.
ii. The table below analyses the Group’s non-derivative financial liabilities and net-settled or gross-settled derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date

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for non-derivative financial liabilities and to the expected maturity date for derivative financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows.

Non-derivative financial

Non-derivative financial
December 31, 2017 Accounts payable Other payables Long-term borrowings (including current portion) Other financial liabilities	Less than 1 year	Between 1 to2years	Between 2 to 3 years	Over3 years
	16,032,335 $ 3,490,587 1,538 23,185	- $ - 1,538 105,678	- $ - 1,538 -	- $ - 14,161 64,233

Non-derivative financial

Non-derivative financial
December 31, 2016 Accounts payable Other payables Long-term borrowings (including current portion) Other financial liabilities	Less than 1 year	Between 1 to2years	Between 2 to 3 years	Over3 years
	18,047,826 $ 3,750,651 1,667 23,814	- $ - 1,667 105,918	- $ - 1,667 -	- $ - 17,013 16,663

Derivative financial liabilities

As of December 31, 2017 and 2016, the derivative financial liabilities are foreign exchange contracts that mature within 1 year.

iii. The Group does not expect the timing of occurrence of the cash flows estimated through the maturity date analysis will be significantly earlier, nor expect the actual cash flow amount will be significantly different.

(3) Fair value information

A. Details of the fair value of the Group’s financial assets and financial liabilities not measured at fair value are provided in Note 12(2)A. Details of the fair value of the Group’s investment property measured at cost are provided in Note 6(8).
B. The different levels that the inputs to valuation techniques are used to measure fair value of financial and non-financial instruments have been defined as follows:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. A market is regarded as active where a market in which transactions for the asset or liability takes place with sufficient frequency and volume to provide pricing information on an on going basis.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3: Unobservable inputs for the asset or liability.
C. The related information of financial and non-financial instruments measured at fair value by level on the basis of the nature, characteristics and risks of the assets and liabilities at December 31, 2017 and 2016, is as follows:

151

December 31, 2017 Assets: Recurring fair value measurements Financial assets at fair value through profit or loss -Forward exchange contract -Foreign exchange swap Total Liabilities: Recurring fair value measurements Financial liabilities at fair value through profit or loss -Forward exchange contract December 31, 2016 Assets: Recurring fair value measurements Financial assets at fair value through profit or loss -Equity security -Forward exchange contract Total Liabilities: Recurring fair value measurements Financial liabilities at fair value through profit or loss -Forward exchange contract	Level 1 - $ - - $ - $ Level 1 105,543 $ - 105,543 $ - $	Level 2 350 $ 20,566 20,916 $ 24,448 $ Level 2 - $ 63,686 63,686 $ 1,430 $	Level3 - $ - - $ - $ Level3 - $ - - $ - $	Total
				350 $ 20,566
				20,916 $
				24,448 $
				Total
				105,543 $ 63,686
				169,229 $
				1,430 $

D. The methods and assumptions the Group used to measure fair value are as follows:
(a) The level 1 financial instruments-equity security held by the Group are listed shares, and the market quoted price is determined by the closing price of the security.
(b) When assessing non-standard and low-complexity financial instruments, for example, debt instruments without active market, interest rate swap contracts, foreign exchange swap contracts and options, the Group adopts valuation technique that is widely used by market participants. The inputs used in the valuation method to measure these financial instruments are normally observable in the market.
(c) The valuation of derivative financial instruments is based on valuation model widely accepted by market participants, such as present value techniques and option pricing models. Forward exchange contracts are usually valued based on the current forward exchange rate.
E. For the years ended December, 2017 and 2016, there was no transfer between Level 1 and Level 2.

152

F. For the years ended December 31, 2017 and 2016, there was no transfer in or out from Level 3.
SUPPLEMENTARY DISCLOSURES
(1)Significant transactions information

The financial information disclosed regarding the investee companies were prepared based on financial statements which were not reviewed by other auditors. The transactions between related companies are offset when preparing consolidated financial statements.

A. Loans to others: None.
B. Provision of endorsements and guarantees to others: None.
C. Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures): None.
D. Acquisition or sale of the same security with the accumulated cost exceeding $300 million or 20% of the Company’s paid-in capital: None.
E. Acquisition of real estate reaching NT$300 million or 20% of paid-in capital or more: None.
F. Disposal of real estate reaching NT$300 million or 20% of paid-in capital or more: None.
G. Purchases or sales of goods from or to related parties reaching NT$100 million or 20% of paid-in capital or more: Please refer to table 1.
H. Receivables from related parties reaching NT$100 million or 20% of paid-in capital or more: Please refer to table 2.
I. Derivative financial instruments undertaken during the year ended December 31, 2017: Please refer to Note 6(2).
J. Significant inter-company transactions during the reporting periods: Please refer to table 3.

(2)Information on investees (not including investees in Mainland China)

Names, locations and other information of investee companies (not including investees in Mainland China): Please refer to table 4.
(3) Information on investments in Mainland China
A. Basic information: Please refer to table 5.
B. Significant transactions conducted with investees in Mainland China directly or indirectly through other companies in the third areas: Please refer to table 6.

14. SEGMENT INFORMATION

(1) General information and measurement of segment information

The Company’s operating segment profit (loss) is measured by the operating income (loss), which is used as a basis in assessing the performance of operating segments. “Operating Segments,” the Company’s reportable operating segments are as follows:

Computer and peripherals business group: Mainly engages in development and sale of mother boards, graphic cards, notebooks, and computer peripherals.

General administration and other segments: Mainly engages in development and sale of other products and in charge of general administration department expenses. There is no material change in the basis for grouping of entities and division of segments in the Group or in the measurement basis for segment information during this period.

153

(2) Information about segment profit or loss, assets and liabilities:

The revenue and segment information provided to the chief operating decision-maker for the reportable segments is as follows: For the year ended December 31, 2017

Total segment revenue Operating income (loss) Other non-operating revenue Profit before tax	Computer and General administration peripherals segment and othersegments 106,266,695 $ 153,210 $ 5,880,613 $ 266,953) ($	Total
		106,419,905 $
		5,613,660 $
		364,892
		5,978,552 $

For the year ended December 31, 2016

Total segment revenue Operating income (loss) Other non-operating revenue Profit before tax	Computer and General administration peripherals segment and othersegments 101,241,655 $ 948,848 $ 5,861,404 $ 342,465) ($	Total
		102,190,503 $
		5,518,939 $
		303,233
		5,822,172 $

The above revenue was derived from the transactions with external customers. The above amounts are provided to the chief operating decision-maker for allocating resources and assessing performance of operating segments.

(3) Reconciliation for segment income

Sales between segments are carried out at arm’s length. The revenue from external customers reported to the chief operating decision-maker is measured in a manner consistent with that in the statement of comprehensive income.

A reconciliation of reportable segment income to the income before tax from continuing operations for the years ended December 31, 2017 and 2016 is provided as follows:

Reportable segments income Unappropriated amount: Other segments income (loss) Income (loss) before tax from continuing operations	2017 5,613,660 $ 364,892 5,978,552 $	2016
		5,518,939 $ 303,233
		5,822,172 $

(4) Information on products and services

Revenue from external customers is mainly from the sales of computer and peripherals and related components. Details of revenue are as follows:

154

Computer and peripherals sale revenue

2017	2016
106,419,905 $	102,190,503 $

(5) Geographical information

Geographical information for the years ended December 31, 2017 and 2016 is as follows:

Asia Europe America Others	Revenue Non-current assets 48,474,767 $ 5,279,062 $ 31,205,584 180,622 24,797,274 138,132 1,942,280 507 106,419,905 $ 5,598,323 $ 2017	Revenue Non-current assets 48,474,767 $ 5,279,062 $ 31,205,584 180,622 24,797,274 138,132 1,942,280 507 106,419,905 $ 5,598,323 $ 2017	Revenue Non-current assets 49,549,879 $ 5,225,266 $ 29,009,332 171,560 21,601,508 147,692 2,029,784 - 102,190,503 $ 5,544,518 $ 2016	Revenue Non-current assets 49,549,879 $ 5,225,266 $ 29,009,332 171,560 21,601,508 147,692 2,029,784 - 102,190,503 $ 5,544,518 $ 2016	Revenue Non-current assets 49,549,879 $ 5,225,266 $ 29,009,332 171,560 21,601,508 147,692 2,029,784 - 102,190,503 $ 5,544,518 $ 2016
	Revenue 48,474,767 $ 31,205,584 24,797,274 1,942,280 106,419,905 $		Revenue 49,549,879 $ 29,009,332 21,601,508 2,029,784 102,190,503 $
					5,225,266 $ 171,560 147,692 - 5,544,518 $

(6) Major customer information

The Group had no individual customer whose sales amount accounts for more than 10% of net operating revenue in the consolidated statement of comprehensive income.

155

MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES

Purchases or sales of goods from or to related parties reaching NT$100 million or 20% of paid-in capital or more

For the year ended December 31, 2017

Table 1

Expressed in thousands of NTD (Except as otherwise indicated)

Transaction company (Note 4)	Name of the counter party (Note 4)	Relationship with the counterparty	Description of the transaction	Description of the transaction	Description of the transaction	Description of the transaction	Description and reasons of difference in transaction terms compared to third party transactions	Description and reasons of difference in transaction terms compared to third party transactions	Accounts or notes receivable (payable)	Accounts or notes receivable (payable)	Footnote
			Purchases/ (Sales)	Amount (Note 3)	% of total purchase (sale)	Credit terms	Unit price	Credit terms	Balance (Note 3)	% of total accounts or notes receivable/(payable)
MICRO-STAR INTERNATIONAL CO., LTD.	MSI (LA)	Subsidiary	Sales	(14,708,898)	(14)	80~100 days	Insignificant difference	Note 1	4,403,333	29	-
MICRO-STAR INTERNATIONAL CO., LTD.	MEGA COMPUTER	Subsidiary	Sales	(4,847,026)	(5)	40-70 days	Insignificant difference	Note 1	748,589	5	-
MICRO-STAR INTERNATIONAL CO., LTD.	MSI (PACIFIC)	Subsidiary	Sales	(1,230,744)	(1)	40-70 days	Insignificant difference	Note 1	-	-	-
MICRO-STAR INTERNATIONAL CO., LTD.	MYSTAR	Subsidiary	Sales	(1,634,776)	(2)	40-70 days	Insignificant difference	Note 1	275,361	2	-
MICRO-STAR INTERNATIONAL CO., LTD.	MSI (KOREA)	Subsidiary	Sales	(2,587,225)	(2)	50-70 days	Insignificant difference	Note 1	44,686	-	-
MEGA COMPUTER	MSI (SHENZHEN)	Affiliated company	Sales	(5,194,616)	(100)	40-70 days	Insignificant difference	Note 1	1,627,354	100	-
MSI COMPUTER (SHENZHEN)	MSI (SHENZHEN)	Affiliated company	Sales	(994,522)	(27)	40-70 days	Insignificant difference	Note 1	-	-	-
MSI (PACIFIC)	MSI COMPUTER (SHENZHEN)	Subsidiary	Sales	(1,056,773)	(21)	40-70 days	Insignificant difference	Note 1	-	-	-
MSI (PACIFIC)	MSI COMPUTER (SHENZHEN)	Subsidiary	Processing overhead	2,762,395	70	Note 2	Insignificant difference	Note 2	(2,354,467)	(72)	-
MSI (PACIFIC)	MSI ELECTRONICS (KUNSHAN)	Subsidiary	Processing overhead	1,108,576	28	Note 2	Insignificant difference	Note 2	(655,399)	(20)	-
MSI (PACIFIC)	MICRO-STAR INTERNATIONAL CO., LTD.	Ultimate parent company	Revenue from processing	3,919,895)	(79)	Note 2	Insignificant difference	Note 2	3,248,214	63	-

Note 1: The credit terms to third parties are approximately 30 to 120 days. Note 2: Credit terms depend on the financial condition of the paying firm. Note 3: Balances after elimination in conformity with regulations.

Note 4: Corresponding transactions are not disclosed.

156

MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES

Receivables from related parties reaching NT$100 million or 20% of paid-in capital or more December 31, 2017

Expressed in thousands of NTD

Table 2

(Except as otherwise indicated)

Creditor	Counterparty	Relationship with the counterparty	Balance as of December 31, 2017	Turnover rate	Overdue receivables	Overdue receivables	Amount collected subsequent to the balance sheet date	Allowance for doubtful accounts
					Amount	Action taken
MICRO-STAR INTERNATIONAL CO., LTD.	MSI (LA)	Subsidiary	4,403,333	3.60	$ -	-	$ 1,200,496	$ -
MICRO-STAR INTERNATIONAL CO., LTD.	MEGA COMPUTER	Subsidiary	748,589	12.95	-	-	283,005	-
MICRO-STAR INTERNATIONAL CO., LTD.	MYSTAR	Subsidiary	275,361	6.30			69,698
MSI (PACIFIC) (Note)	MICRO-STAR INTERNATIONAL CO., LTD.	Ultimate parent company	3,248,214	0.83	-	-	626,035	-
MSI COMPUTER (SHENZHEN) (Note)	MSI (PACIFIC)	Parent Company	2,354,467	1.05	-	-	442,998	-
MSI ELECTRONICS (KUNSHAN) (Note)	MSI (PACIFIC)	Parent Company	655,399	1.85	-	-	178,823	-
MSI (B.V.I.)	MSI (PACIFIC)	Parent Company	139,076	-	-	-	-	-
MEGA COMPUTER	MSI (SHENZHEN)	Affiliated company	1,627,354	4.81	-	-	443,774	-

Note: Processing overhead receivable.

157

MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES

Significant inter-company transactions during the year ended December 31, 2017

Expressed in thousands of NTD

Table 3

(Except as otherwise indicated)

Number	Company name (Note 4)	Counterparty (Note 4)	Relationship		Transaction
				General ledger account	Amount (Note 1)	Transaction terms	Percentage of consolidated total operating revenues or total assets
0	MICRO-STAR INTERNATIONAL CO., LTD.	MSI (LA)	Parent company to subsidiary	Sales	$ 14,708,898	Note 2	13.82%
0	MICRO-STAR INTERNATIONAL CO., LTD.	MEGA COMPUTER	Parent company to subsidiary	Sales	4,847,026	Note 2	4.55%
0	MICRO-STAR INTERNATIONAL CO., LTD.	MSI (KOREA)	Parent company to subsidiary	Sales	2,587,225	Note 2	2.43%
0	MICRO-STAR INTERNATIONAL CO., LTD.	MSI (PACIFIC)	Parent company to subsidiary	Sales	1,230,744	Note 2	1.16%
0	MICRO-STAR INTERNATIONAL CO., LTD.	MYSTAR	Parent company to subsidiary	Sales	1,634,776	Note 2	1.54%
0	MICRO-STAR INTERNATIONAL CO., LTD.	MSI (LA)	Parent company to subsidiary	Accounts receivable	4,403,333	Note 2	8.96%
0	MICRO-STAR INTERNATIONAL CO., LTD.	MEGA COMPUTER	Parent company to subsidiary	Accounts receivable	748,589	Note 2	1.52%
0	MICRO-STAR INTERNATIONAL CO., LTD.	MYSTAR	Parent company to subsidiary	Accounts receivable	275,361	Note 2	0.56%
0	MICRO-STAR INTERNATIONAL CO., LTD.	MSI (PACIFIC)	Parent company to subsidiary	Accrued expenses payable	3,280,384	Note 2	6.67%
0	MICRO-STAR INTERNATIONAL CO., LTD.	MSI (PACIFIC)	Parent company to subsidiary	Processing cost	3,712,930	Note 3	3.49%
0	MICRO-STAR INTERNATIONAL CO., LTD.	MSI (PACIFIC)	Parent company to subsidiary	Operating expense	259,698	Note 2	0.24%
0	MICRO-STAR INTERNATIONAL CO., LTD.	MYSTAR	Parent company to subsidiary	Operating expense	161,244	Note 2	0.15%
0	MICRO-STAR INTERNATIONAL CO., LTD.	MSI (EUROPE)	Parent company to subsidiary	Operating expense	155,939	Note 2	0.15%
0	MICRO-STAR INTERNATIONAL CO., LTD.	MEGA COMPUTER	Parent company to subsidiary	Operating expense	151,469	Note 2	0.14%
0	MICRO-STAR INTERNATIONAL CO., LTD.	MSI (MHK)	Parent company to subsidiary	Operating expense	120,823	Note 2	0.11%

158

0	MICRO-STAR INTERNATIONAL CO., LTD.	MSI (POLSKA)	Parent company to subsidiary	Operating expense	118,539	Note 2	0.11%
0	MICRO-STAR INTERNATIONAL CO., LTD.	MSI (SARL)	Parent company to subsidiary	Operating expense	91,337	Note 2	0.09%
0	MICRO-STAR INTERNATIONAL CO., LTD.	MSI (RUSSIA)	Parent company to subsidiary	Operating expense	81,153	Note 2	0.08%

159

Number	Company name (Note 4)	Counterparty (Note 4)	Relationship	Transaction	Transaction	Transaction	Transaction
				General ledger account	Amount (Note 1)	Transaction terms	Percentage of consolidated total operating revenues or total assets
0	MICRO-STAR INTERNATIONAL CO., LTD.	MSI (LA)	Parent company to subsidiary	Operating expense	$ 69,005	Note 2	0.06%
0	MICRO-STAR INTERNATIONAL CO., LTD.	MSI (KOREA)	Parent company to subsidiary	Operating expense	56,589	Note 2	0.05%
1	MSI (PACIFIC)	MSI COMPUTER (SHENZHEN)	Subsidiary to subsidiary	Accrued expenses payable	2,354,467	Note 2	4.79%
1	MSI (PACIFIC)	MSI ELECTRONICS (KUNSHAN)	Subsidiary to subsidiary	Accrued expenses payable	655,399	Note 2	1.33%
1	MSI (PACIFIC)	MSI (B.V.I.)	Subsidiary to subsidiary	Accrued expenses payable	139,076	Note 3	0.28%
1	MSI (PACIFIC)	MICRO ELECTRONICS	Subsidiary to subsidiary	Accrued expenses payable	92,620	Note 3	0.19%
1	MSI (PACIFIC)	MICRO-STAR INTERNATIONAL CO., LTD.	Subsidiary to parent	Accounts receivable	3,248,214	Note 2	6.61%
1	MSI (PACIFIC)	MICRO-STAR INTERNATIONAL CO., LTD.	Subsidiary to parent	Processing Revenue	3,919,895	Note 3	3.68%
1	MSI (PACIFIC)	MSI COMPUTER (SHENZHEN)	Subsidiary to subsidiary	Sales	1,056,773	Note 2	0.99%
1	MSI (PACIFIC)	MSI ELECTRONICS (KUNSHAN)	Subsidiary to subsidiary	Processing overhead	1,108,576	Note 3	1.04%
1	MSI (PACIFIC)	MSI COMPUTER (SHENZHEN)	Subsidiary to subsidiary	Processing overhead	2,762,395	Note 3	2.60%
2	MEGA COMPUTER	MSI (SHENZHEN)	Subsidiary to subsidiary	Sales	5,194,616	Note 2	4.88%
2	MEGA COMPUTER	MSI (SHENZHEN)	Subsidiary to subsidiary	Accounts receivable	1,627,354	Note 2	3.31%
3	MSI COMPUTER (SHENZHEN)	MSI (SHENZHEN)	Subsidiary to subsidiary	Sales	994,522	Note 2	0.93%

Note 1: Balances after elimination in conformity with regulations.

Note 2: Transaction terms were approximately the same as those to third parties.

Note 3: Processing overhead was determined based on the quantities, contract amount and delivery time.

Note 4: Individual transactions not exceeding $50,000 and their corresponding transactions are not disclosed.

160

MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES

Information on investees (not including investees in Mainland China)

For the year ended December 31, 2017

Expressed in thousands of NTD

Table 4

(Except as otherwise indicated)

Investor	Investee	Location	Main business activities	Initial investment amount	Initial investment amount	Shares held as at December 31, 2017	Shares held as at December 31, 2017	Shares held as at December 31, 2017	Net profit (loss) of the investee for the year ended December 31, 2017	Investment income (loss) recognised by the Company for the year ended December 31,2017	Footnote
				Balance as at December 31, 2017	Balance as at December 31, 2016	Number of shares	Ownership (%)	Book value
MICRO-STAR INTERNATIONAL CO., LTD.	MSI (LA)	U.S.A	Sales and maintenance of computers,and electronic components	258,468	258,468	575,458	100.00	33,415	32,835	32,835	Direct subsidiary
MICRO-STAR INTERNATIONAL CO., LTD.	MSI (AUSTRALIA)	Australia	Maintenance and after-sales service of computers and electronic components	57,420	57,420	221,836	100.00	7,058	365	365	Direct subsidiary
MICRO-STAR INTERNATIONAL CO., LTD.	MSI (JAPAN)	Japan	Sales support and maintenance of computers and electronic components	20,411	20,411	1,400	100.00	11,150	(374)	(374)	Direct subsidiary
MICRO-STAR INTERNATIONAL CO., LTD.	MSI (PACIFIC)	Cayman Islands	Holding company	2,016,877	3,089,627	47,204,118	100.00	6,490,907	325,822	336,822	Direct subsidiary
MICRO-STAR INTERNATIONAL CO., LTD.	MSI (HOLDING)	Netherlands	Holding company	154,166	154,166	1,577,762	100.00	714,207	16,145	16,145	Direct subsidiary
MICRO-STAR INTERNATIONAL CO., LTD.	MYSTAR INVESTMENT	Taiwan	General investment	-	307,000	-	-	-	(2,391)	(2,391)	Direct subsidiary (Note 2)
MICRO-STAR INTERNATIONAL CO., LTD.	MSI COMPUTER (CAYMAN)	Cayman Islands	Holding company	99,093	99,093	50,000	100.00	124,021	60	60	Direct subsidiary
MSI (PACIFIC)	MSI (KOREA)	South Korea	Sales and maintenance of computers and electronic components	24,374	24,374	80,000	100.00	241,831	54,333	-	Indirect subsidiary
MSI (PACIFIC)	MSI (B.V.I.)	British Virgin Island	Holding company	1,784,681	2,213,781	47,465,071	100.00	3,865,617	129,625	-	Indirect subsidiary
MSI (PACIFIC)	MICRO ELECTRONICS	British Virgin Island	Holding company	1,168,593	1,168,593	33,315,472	100.00	2,384,977	123,176	-	Indirect subsidiary
MSI (PACIFIC)	STAR INFORMATION	British Virgin Island	Holding company	144,721	144,721	4,502,601	100.00	33,506	2,283	-	Indirect subsidiary

161

Investor	Investee	Location	Main business activities	Initial investment amount	Initial investment amount	Shares held as at December 31, 201	Shares held as at December 31, 201	7	Net profit (loss) of the investee for the year ended December 31, 2017	Investment income (loss) recognised by the Company for the year ended December 31, 2017	Footnote
				Balance as at December 31, 2017	Balance as at December 31, 2016	Number of shares	Ownership (%)	Book value
MSI (PACIFIC)	MEGA TECHNOLOGY	British Virgin Island	Holding company	91,296	91,296	3,000,000	100.00	(5,984)	(3,824)	-	Indirect subsidiary
MSI (PACIFIC)	MEGA INFORMATION	British Virgin Island	Holding company	23,940	23,940	700,000	100.00	21,574	1,245	-	Indirect subsidiary
MSI (PACIFIC)	MEGA COMPUTER	Hong Kong	Sales support of computers and electronic components	-	-	1	100.00	7,376	(448)	-	Indirect subsidiary
MSI (PACIFIC)	MSI (MHK)	Hong Kong	Sales support of computers and electronic components	-	-	1	100.00	7,225	3,733	-	Indirect subsidiary
MSI (HOLDING)	MYSTAR	Netherlands	Sales support of computers and electronic components	71,353	71,353	-	100.00	227,534	7,190	-	Indirect subsidiary
MSI (HOLDING)	MSI (RUSSIA)	Russia	Sales support and maintenance of computers and electronic components	68,258	68,258	-	99.00	32,814	(718)	-	Indirect subsidiary
MSI (HOLDING)	MSI (GMBH)	Germany	Sales support of computers and electronic components	71,471	71,471	-	100.00	4,180	(560)	-	Indirect subsidiary (Note 3)
MSI (HOLDING)	MSI (POLSKA)	Poland	Maintenance and after-sales services of computers and electronic components	46,077	46,077	-	99.00	31,561	622	-	Indirect subsidiary
MSI (HOLDING)	MSI (SARL)	France	Sales support of computers and electronic components	26,646	26,646	-	100.00	45,795	2,650	-	Indirect subsidiary
MSI (HOLDING)	MSI (UK)	Britain	Sales support of computers and electronic components	37,226	37,226	-	100.00	11,290	433	-	Indirect subsidiary
MSI (HOLDING)	MSI (TURKEY)	Turkey	Sales support of computers and electronic components	3,229	3,229	-	99.00	(111)	-	-	Indirect subsidiary (Note 3)
MSI (HOLDING)	MSI (ITALY)	Italy	Sales support of computers and electronic components	2,153	2,153	-	100.00	597	449	-	Indirect subsidiary
MSI (HOLDING)	MSI (EUROPE)	Netherlands	Logistics services of computers and electronic components	37,620	37,620	-	100.00	39,260	543	-	Indirect subsidiary
MSI (EUROPE)	MSI (RUSSIA)	Russia	Sales support and maintenance of computers and electronic components	689	689	-	1.00	569	(718)	-	Indirect subsidiary

162

Investor	Investee	Location	Main business activities	Initial investment amount	Initial investment amount	Shares held as at December 31, 2017	Shares held as at December 31, 2017	Shares held as at December 31, 2017	Net profit (loss) of the investee for the year ended December 31, 2017	Investment income (loss) recognised by the Company for the year ended December 31, 2017	Footnote
				Balance as at December 31, 2017	Balance as at December 31, 2016	Number of shares	Ownership (%)	Book value
MSI (EUROPE)	MSI (POLSKA)	Poland	Maintenance and after-sales service of computers and electronic components	467	467	-	1.00	182	622	-	Indirect subsidiary
MSI (EUROPE)	MSI (TURKEY)	Turkey	Sales support of computers and electronic components	33	33	-	1.00	27	-	-	Indirect subsidiary (Note 3)

Note 1: The table is presented in New Taiwan dollars. Except for the initial investment amount is valued at historical exchange rate, the others are valued with exchange rate 1USD=29.76 NTD; 1EUR=35.57 NTD on December 31, 2017 and average rate

with 1USD=30.4313 NTD; 1EUR=34.3542 NTD for the year ended December 31, 2017.

Note 2: In November 2017, this subsidiary has completed the liquidation

process.

Note 3: As of December 31, 2017, the liquidation process has not been completed.

163

MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES

Information on investments in Mainland China - Basic information

For the year ended December 31, 2017

Table 5										Expressed in thousands of NTD (Except as otherwise indicated)	Expressed in thousands of NTD (Except as otherwise indicated)	Expressed in thousands of NTD (Except as otherwise indicated)	Expressed in thousands of NTD (Except as otherwise indicated)
Investee in Mainland China	Main business activities	Paid-in capital	Investment method	Accumulated amount of remittance from Taiwan to Mainland China as of January 1, 2017	Amount rem to Mainlan remitted bac year ended	itted from Taiwan d China/ Amount k to Taiwan for the December 31, 2017	Accumulated amount of remittance from Taiwan to Mainland China as of December 31, 2017	Net income of investee as of December 31, 2017	Ownership held by the Company (direct or indirect)	Investment income (loss) recognised by the Company for the year ended December 31, 2017 (Note 2)	Book value of investments in Mainland China as of December 31, 2017	Accumulated amount of investment income remitted back to Taiwan as of December 31, 2017	Footnote
					Remitted to Mainland China	Remitted back to Taiwan
MSI COMPUTER (SHENZHEN)	Sales and manufacture of computers, and electronic components	1,726,857	Note 1	$ 1,726,857	-	-	$ 1,726,857	$ 129,576	100.00	129,576	$3,411,030	-	-
MSI ELECTRONICS (KUNSHAN)	Sales and manufacture of computers, and electronic components	1,772,675	Note 1	1,772,675	-	-	1,772,675	123,386	100.00	123,386	2,015,192	-	-
SHENZHEN MEGA INFORMATION	Examination and maintenance of computers, and electronic components	23,940	Note 1	23,940	-	-	23,940	1,245	100.00	1,245	21,574	-	-
MSI COMPUTER TRADING (SHENZHEN)	Sales and maintenance of computers and electronic components	91,296	Note 1	-	-	-	-	(3,824)	100.00	(3,824)	(5,984)	-	Note 3
MSI (SHENZHEN)	Sales and maintenance of computers and electronic components	30,092	Note 1	-	-	-	-	2,147	100.00	2,147	20,452	-	Note 4

164

Accumulated amount of remittance from Taiwan to	Accumulated amount of remittance from Taiwan to	Investment amount approved by the Investment Commission of the Ministry of Economic Affairs (MOEA) $ 3,821,712	Ceiling on investments in Mainland China
			imposed by the Investment Commission of MOEA $ 16,681,962
		$
$	Mainland China as of December 31, 2017 3,602,547		$

Note 1: The investments were made indirectly through 100% owned subsidiary of the Company.

Note 2: Evaluated based on audited financial statements of the investee companies.

Note 3: The amount of US $3,000 thousand was remitted by the Company's subsidiary, MSI (Pacific), to MSI TRADING (SHENZHEN).

Note 4: The amount of US $1,000 thousand was remitted by the Company's subsidiary, MSI (Pacific), to MSI (SHENZHEN).

Note 5: In pursuance of Shen-Zi Letter No.09704604680 from the Ministry of Economic Affairs dated August 29, 2008. The amended "Regulations for examination of investments and technical cooperation in Mainland Area" sets the limitation for investments in Mainland China to be higher of net book value or 60% of consolidated net book value.
Note 6: The table is presented in New Taiwan dollars. Except for the initial investment amount is valued at historical exchange rate, the others are valued with exchange rate 1USD=29.76 NTD on December 31, 2017 and average rate with 1USD=30.4313 NTD for the year ended December 31, 2017.

165

MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES

Information on investments in Mainland China - Significant transactions conducted with investees in Mainland China directly or indirectly through other companies in third areas

For the year ended December 31, 2017

Table 6

Expressed in thousands of NTD (Except as otherwise indicated)

Amount of endorsements/guarantees secured with collaterals Balance as of December 31, 2017 Purpose $ - - - - - - - -	Accommodation of funds	Accommodation of funds
Balance as of December 31, 2017 $ - - - -	Balance as	Interest rate
	of December
	31, 2017 $ - - - -	range - - - -

Note: Processing overhead.

166

Micro Star International Co., Ltd.

Chairman: Hsu, Hsiang

167

AI assistant

MSI — Annual Report 2017

52042_rns_2018-06-26_e2d7476d-5d43-467e-abd4-778fbb6c4d96.pdf

Stock Code:2377

MICRO STAR INTERNATIONAL CO., LTD.

2017 ANNUAL REPORT

I. SPOKESPERSON & DEPUTY SPOKESPERSON

DEPUTY SPOKESPERSON

Deputy Spokesperson: Chang,Ju-Ting

II. HEADQUARTERS AND PLANTS

� .SECURITIES DEALING INSTITUTE

IV. AUDITORS

V. EXCHANGEABLE BOND EXCHANGE MARKETPLACE

VI. COMPANY WEBSITE

CONTENTS

.Letter to Shareholders

Dear Shareholders:

2. Profitability analysis

3.Research and Development Status

( � ) Operating Plan for 2018

Sincerely yours,

Chairman: Hsu, Hsiang

II. Introduction of the Company

( � )Establishment date: August 4, 1986

( � )Development history

Corporate governance report

2.Major Corporate Function

( ) Directors, Supervisors, President, Vice President, Assistant VP, and department heads

1. Directors and Supervisors

2. Information of the management

( )Remuneration paid during the most recent fiscal year to directors, supervisors, president and vice presidents

1.Remuneration of Directors, Supervisors

(1) Remuneration of Directors (including Independent Directors)

(2) Remuneration of Supervisors

Remuneration Bracket

2. Remuneration of President and Vice Presidents

( ) Corporate governance

2. Audit Committee or Attendance of Supervisors at Board Meetings:

3. Corporate Governance Implementation Status and Deviations from “Corporate Governance Best-Practice Principles for TWSE/TPEx Listed Companies”

4.Professional Qualifications and Independence Analysis of Remuneration Committee Members

A. Attendance of Members at Remuneration Committee Meetings

There are 3 members in the Remuneration Committee.

(2)Scope of duties

5.Implementation of Corporate Social Responsibility

(4)Medical Assistance

(6)Donation of Computers

(7) Environmental protection events

6.Implementation of Ethical Practice

8. Other Information:

Micro Star International Co., Ltd. Statement of Internal Control System

( 8 ) CPAs Fees

( 9 )CPA's Information

2.Information of Shares Transferred

3.Information of Equity Pledged: None.

( ; ) Relationship among the Top Ten Shareholders

( > )Ownership of Shares in Affiliated Enterprises 5

C . Capital Overview

( D )Capital and Shares

1.Capital and Shares

(2)Information for Shelf Registration: None.

2.Status of Shareholders

3.Shareholding Distribution Status

(1)Common Shares

4.List of Major Shareholders

5. Market Price, Net Worth, Earnings, and Dividends per Share

6.Dividend policy of the company and its implementation

(1)Dividend Policy

M . Operation summary

( D )Business content

1.Scope of business

(2)Proportion of each business

(3) Current products and services of the Company

2.Industry Overview

(2)Correlation of the upstream, midstream, and downstream of the industry:

(3)Product development trends

N

A. Parts and components:

B. Systematic products:

3. Overview of Technology and Research and Development

4.Short-term and long-term development plan

MSI Annual Report 2017