Zyxel Group — Call Transcript 2024

Mar 15, 2024

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Zyxel Group Corporation(3704) 2023 Fourth Quarter Earnings Conference March 15, 2024

Unizyx Confidential

Safe Harbor Notice

◼ The statements contains historical information and forward-looking statements.

◼ Such forward-looking statements involve unknown risks and uncertainties, which may cause the actual performance, financial condition or results of forecast of Unizyx Holding Corporation to be materially different from any future performance, financial condition or results of operations implied by such forward-looking statements.

Zyxel Group Corporation 2

23Q4 Statements of Comprehensive Income

Unit: NT$ Million Net Sales Cost of Goods Sold Gross Profit Operating Expenses Operating Income Non-Operating Income (Loss) Income before Tax Income Tax (Gain) Net Income Net Income to Shareholders of the Parent Company EPS (NT Dollar)		23Q4 % 7,429 100.0% 5,722 77.0% 1,707 23.0% 1,431 19.3% 276 3.7% (80) -1.1% 196 2.6% (96) -1.3% 292 3.9% 286 3.8% 0.71		23Q3 % 6,974 100.0% 5,418 77.7% 1,556 22.3% 1,347 19.3% 209 3.0% 159 2.3% 368 5.3% 72 1.1% 296 4.2% 290 4.2% 0.73	22Q4 % 8,597 100.0% 6,427 74.8% 2,170 25.2% 1,488 17.3% 682 7.9% (185) -2.1% 497 5.8% 41 0.5% 456 5.3% 456 5.3% 1.15	QoQ% YoY% 6.5% -13.6% 5.6% -11.0% 9.7% -21.3% 6.2% -3.8%

Zyxel Group Corporation 3

2023 Statements of Comprehensive Income

Unit: NT$ Million Net Sales Cost of Goods Sold Gross Profit Operating Expenses Operating Income Non-Operating Income (Loss) Income before Tax Income Tax (Gain) Net Income Net Income to Shareholders of the Parent Company EPS (NT Dollar)	2023 % 30,380 100.0% 23,701 78.0% 6,679 22.0% 5,390 17.8% 1,289 4.2% 267 0.9% 1,557 5.1% 201 0.6% 1,356 4.5% 1,341 4.4% 3.38	2022 % YoY% 30,516 100.0% -0.4% 23,528 77.1% 0.7% 6,988 22.9% -4.4% 5,141 16.8% 4.8% 1,847 6.1% -30.2% 145 0.4% 84.1% 1,992 6.5% -21.8% 365 1.2% -44.9% 1,627 5.3% -16.7% 1,618 5.3% -17.1% 3.87

Zyxel Group Corporation 4

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23Q4 Revenue by Product
Copper
Other, 11% Broadband,
Enterprise, 12%
12%
FWA, 8%
Fiber
Broadband,
57%
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Zyxel Group Corporation 5

2023 Revenue by Product

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Copper
Other, 11%
Broadband,
Enterprise,
12%
12%
FWA, 8%
Fiber
Broadband,
57%
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Zyxel Group Corporation 6

23Q4 Revenue by Region

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Europe, 48%
North
Emerging America, 27%
Markets &
AsiaPac, 25%
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Zyxel Group Corporation 7

2023 Revenue by Region

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Europe, 49%
North
Emerging America, 25%
Markets &
AsiaPac, 26%
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Zyxel Group Corporation 8

Balance Sheets & Key Indices

Unit: NT$ Million Cash and Cash Equivalents Accounts Receivable Inventories Long-term Investments Property, Plant and Equipment Other Assets Total Assets Current Liabilities Non-Current Liabilities Total Liabilities Total Equity Book Value per Share Key Indices AR Turnover Days Inventory Turnover Days Current Ration (X)		2023.12.31 % 6,546 30% 6,952 32% 3,616 17% 270 1% 1,824 8% 2,645 12% 21,853 100% 8,130 37% 2,607 12% 10,737 49% 11,116 51% 27 83 74 2.2		2023.9.30 % 5,967 26% 6,520 29% 5,633 25% 273 1% 1,781 8% 2,557 11% 22,731 100% 9,342 41% 2,617 12% 11,959 53% 10,771 47% 26 86 97 2.0	2022.12.31 % 6,040 22% 8,449 31% 8,001 30% 171 1% 1,891 7% 2,511 9% 27,063 100% 14,402 53% 2,647 10% 17,049 63% 10,014 37% 25 85 112 1.6

Zyxel Group Corporation 9

SP Technology Trends - Combining 10G PON & Wi-Fi 7 technology Through GAI Achieve Immersive Experiences - Digital Acceleration

• Achieving GAI for immersive experiences, needs multi Gbps &10ms level latency Network

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BCG - DAI benefit (Digital Acceleration Index) 10% upward in revenue growth (67% 領先公司 ) 10% upward in total enterprise value (66% 領先公司 )

10G PON and 2.5G PON alternation occurs in 2024 (CAGR: 77%). 10G PON optical device BOSA's price will be below $10 USD in 2024. WiFi 7 provides 5msec latency, estimate 10M units shipped WW in 2024.

• Zyxel SP group : 10G PON and WiFi 7 technology

WiFi 7 Tri-Band BE19000 received WFA WiFi 7 certification. Integrating 10G PON and WiFi 7 HGU.

Provide E2E PON solutions, SP upgrade path from 2.5G to 10G PON.

• Zyxel SP group : 10G PON & WiFi 7 business development 10G PON products, cumulatively shipped over 1M units by 2023e Shippment in NA, Northern Europe, Germany, France, Netherland.

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Omdia
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7
6E
6
5
4
2020 2024e 2027e
Dell’Oro Group 10
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Service Provider Service Trends – Deploying Remote OLT

• Traditional OLT deployment mainly adipts centralized deployment in local exchange office rooms.

• Increasing number of applications & devices that require sharing of fiber resources (e.g., 5G base stations, WiFi APs, corporate P2P line applications) led to a shortage of fiber resource.

• Service Providers are beginning to try deploying more Remote OLT in building basements or remote sites to handle the shortage of fiber resources situations.

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11

IES4204M Remote OLT

Technology and Service Trends : Commercial Networking

 CAGR for cloud-managed network market exceeds 10% by 2027. Additionally, the demand for small to medium-sized enterprises (SME) constitutes approximately 30%, and expected higher growth. The primary reasons for this trend include:

• ✓ Cloud-managed network solutions offer SMBs more flexible and cost-effective alternatives to centrally manage and protect their network infrastructure. This eases the impact of inflation & IT labor constraint.

• ✓ Cloud network management solutions creates opportunities for typical network solution vendors to explore software licensing as a new revenue stream. Furthermore, it facilitates the transformation of traditional distribution channels and system integrators into Managed Service Providers (MSPs), expanding their business opportunities.

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Technology and Service Trends : Commercial Networking

 Zyxel Nebula is the leading cloud-managed network solution tailor designed for SMBs, integrating cybersecurity firewalls, network switches, and WiFi APs.

✓ Number of devices managed through the Nebula solution grew by 20%, and Nebula software license subscription service revenue grew 80% in 2023.

✓ In 2023, we enabled the AI assistance feature, allowing users to get configuration assistance through natural language queries, further enhancing the user experience. Next step will focus on intelligent management, utilizing AI, ML, and analytical technologies to provide more precise monitoring, and predictive maintenance.

• With the demand growth and new product introduction, the cybersecurity product line grew by 20% in 2023.

✓ The most significant growth is in cybersecurity software license subscription service, reaching 400M NTD, accounts for 30% of the cybersecurity business. Double digit growth anticipated in 2024.

✓ Future product development will focus on the innovative application of AI, to enhance the resiliency to against cybersecurity impact.

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Technology and Service Trends : Commercial Networking

• Zyxel Networks took lead in introducing WiFi 7 into SMB market. In Oct 2023, a WiFi 7 flagship business wireless AP was introduced, and in Mar 2024, another entry level WiFi 7 AP was released. With the 6GHz support by most new phones & notebooks, WiFi 7 adoption rate will boost from this year.

• In 2023, a lineup of Multi-G Switch products was completed. In 2024, the primary focus will be developing 100G network switches for the SMB and specific vertical markets. Besides, WiFi 7 AP will further boost the market demand for high-power Multi-G PoE switches.

• In Feb 2024, Zyxel Network become the world’s only networking brand recognized at the elite Provider Acceptance Level by the U.S. government’s National Vulnerability Database (NVD). This indicates Zyxel a trustworthy brand in cybersecurity.

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The challenge of carbon competitiveness

• ESG performance are listed as key items in telecom customer bidding projects

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• Joining the SBTi is a basic requirement for cooperation with key customers

• CBAM becomes one of the factors of cost competition

• Taiwan government imposes carbon fee

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|||||
|---|---|---|---|
|•|50% carbon reduction in 2030, 2050 net zero|
|carbon reduction target|
|Goals and|•|Carbon reduction by 4.2% per year|
|Commitments|Participate in international|•|Join the SBTi|
|initiatives|•|Annual response to CDP|
|Digitizing carbon|•|Greenhouse gas inventory management platform|
|•|
|management|Product carbon footprint management platform|
|Digital transition|
|Smart energy management|•|Energy management platform|
|Sustainable|Production|
|•|Replace energy-consuming equipment|
|carbon reduction|
|management|
|Low carbon transition|
|Strategy|Energy transition|•|Solar energy construction plan|
|and action|
|Product carbon|Product|•|Product energy-saving design|
|reduction|low carbon design|•|Product carbon footprint inventory|
|•|BCM risk assessment and management|
|Corporate Governance|Risk Management|•|TCFD for climate scenario analysis and financial|
|impact|
|Human Rights|Human rights|•|Human rights due diligence plan|
|•|
|and biodiversity|Support biodiversity|
|and Community|

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Reduce carbon emissions together with suppliers

• Government subsidy project: Leading supply chain low-carbon transformation plan

• Hold a supplier conference and work with suppliers to reduce carbon emissions

• Hosted the Supplier Zero Carbon Academy, with an estimated 4,000 participants

• Support the suppliers to conduct greenhouse gas and product carbon footprint inventory

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ESG Investment Indicators: Rating of the Three Major International Sustainability Indexes

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Dow Jones MSCI
Sustainability Indexes ESG Index
Communication equipment
industry
ESG rating
Ranked No. 2
Listed in
A
S&P Global’s
Sustainability Yearbook
2024
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FTSE
ESG Index
Telecommunications
Equipment Industry
4
(Full score: 5 points)
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Sustainability awards recognition

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CDP Ecovadis
Climate Change Rating ESG Rating
B
Sliver Award
Management level
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Corporate Governance Corporate Sustainability Corporate Sustainability
Business Weekly
Reporting Award Award
Assessment
Leadership Top 100
Top 20% Gold Award
Award Carbon
(among 997companies) Sustainability Report Information Security competitiveness
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Outlook

Unizyx Confidential

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Q&A

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Unizyx Confidential

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Unizyx Confidential