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Contents

Report to Shareholders 2

Introduction to MTI Products and Market Outlook 5

Financial Review 11

Selected Financial Data 11

Consolidated Results of Operations 12

Report of Independent Accountant 16

Consolidated Financial Statements 17

Notes to Consolidated Financial Statements 22

Corporate Directory 74

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Report to Shareholders Dear Shareholders: First of all, we wish to thank the shareholders for your long-term support of Microelectronics Technology Inc. (MTI). During 2008, with the dedicated efforts of our staff, MTI was able to deliver brisk performance in revenues and profits regardless of the global financial turmoil that started in the fourth quarter. The company's consolidated revenues reached NT$8.024 billion, the record high since it was founded, representing a 14% growth over 2007; consolidated gross profits reached NT$1.531 billion, equivalent to a 19% percent gross margin; the consolidated net profit was NT$3.54 billion, equals to an after-tax net EPS of NT$0.85. In the following we would like to present to our shareholders MTI's operating results for 2008 and our business strategies for 2009. Focusing on Customers and Creating Advantages The largest contribution to the company's revenues remains satellite TV reception equipment – low-noise block converter (LNB) products - 60% of which comes from shipments of high-end digital satellite converters. MTI therefore continues to be the leading supplier to North American and European direct broadcast satellite television industries. Secondly, the products that enjoyed the largest growth in revenue in 2008 were the key components for third-generation (3G) mobile base station equipment – power amplifiers (PA), with growth rates exceeding 70%. Not only did several new products successfully enter into mass production, with the issue of China's 3G licenses, the demand for power amplifiers (PA) also surged due to the market effects of the re-shuffle of China's telecom service providers, which facilitated the speed-up of full-scale 3G network deployment. It is estimated that this demand will continue until the first half of 2009.

MTI remains the market leader for private small-scale commercial satellite communications products - broadband satellite transceivers (such as Very Small Aperture Terminal, VSAT) as part of the Ka-band broadband satellite transceivers. However, since capacity for the Ka-band broadband satellite in North America was somewhat saturated, shipments in 2008 slowed down slightly. It is expected that a number of new Ka-band broadband satellites will be launched between 2010 and 2014, which will drive the next wave of growth momentum. With the operation of IPSTAR, Asia's largest broadband satellite, gradually picking up speed, continued growth in shipments of Ku-band equipment is also expected.

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As a result of the Wuxi manufacturing base’s successful launch of microwave transceiver production, the company’s cost-competitive advantages have been strengthened for Digital Microwave Radio products. The performance for the first three quarters of last year was outstanding, with shipment and profitability levels exceeding the average. In the fourth quarter, however, the global financial crisis resulted in declining market demand for microwave products, and shipment quantities were below our expectation. In addition to working with strategic partners in Europe on a series of projects, our focus for this year will involve cautious and prudent observation of the market and taking the appropriate measures in response.

As for our new business endeavors, the WiMAX broadband access network, the 802.16e WiMAX Outdoor CPE products developed by MTI have not seen results that we expected due to the global economic downturn, although there has been some progress in South Africa and other African markets, where interoperability tests between our products and those of several other WiMAX base station vendors are currently underway. Another new product, the wireless Radio Frequency Identification (RFID) Reader, has not only been awarded the Taiwan Product Excellence for a second time, we have also secured strategic partners in the business expansion plan in order to develop new markets with tremendous potential.

Sound and Prudent Financial Management

In the second half of 2008, the US financial crisis spread to the rest of the world. The global economy stagnated, and the business environment became increasingly challenging. Under these circumstances, sound corporate management and solid development strategy become ever more important. In addition to maintaining its long-standing stringent controls over risks and capital adequacy, MTI's financial management strategy is also committed to further enhancing its operating competitiveness. In response to the financial crisis, more effective control of accounts receivable and inventory was instituted. The number of days for cash turnover in 2008 was 82 days, 14 days less than the 96 days of 2007; an outstanding management performance. In addition, the bank credit available to MTI in 2008 actually increased, which was further testament to the company’s sound and prudent financial management performance. Award-Winning, Innovative Technology

Last year, MTI's R&D team won a total of three major awards, namely the "Radio Frequency

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Identification Device Read/Write Device", winner of the 16th Taiwan Excellence Award, the “12 Channel One Cable Solution LNBF (DODECA)” was awarded the Hsinchu Science-based Industrial Park’s Innovative Product Award; and the 16th Industrial Technology Award of "Outstanding Innovative Enterprise Award" of the Ministry of Economic Affairs. These honors both affirm the technological strengths of MTI and highlight MTI products’ excellence and quality assurance.

Visions

MTI is ready to tackle the challenges of the global financial crisis head on. In addition to enhancing the competitiveness of our core products, paying close attention to market developments, and finding a balance between building production capacity and expected demand so as to maintain a high capacity utilization rate, MTI will at the same time strengthen risk management, reduce inventory, review and improve internal processes, and focus on achieving long-term strategic development objectives in order to be fully prepared when the economy makes a recovery in the future. Once again we express our sincere thanks to all colleagues for their efforts and contribution to the company over the past year, and helping MTI continue to grow and exceed the targets that have been set. At the same time we would also like to thank all shareholders, customers and contractors, for their continued support, encouragement, contribution and efforts. Looking to the future, the entire staff at MTI will remain committed to doing our best to help our customers succeed and to bring further growth to shareholders’ value. Please join us in our endeavors to achieve both excellence and the goal of becoming a world-class corporation. Best wishes, Patrick H.Y. Wang Chi-Chia Hsieh Allen Yen Chairman of the Board Vice Chairman of the Board President

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Introduction to MTI Products and Market Outlook

Satellite TV Receiving Equipment

Direct to Home (DTH) services have seen exciting worldwide development, particularly in countries such as the US, Europe, and Japan, with a rapid increase in the total number of users. In North America, the two major satellite TV broadcast service providers, DirecTV and Dish Network, make up approximately 60% of the

global market. In 2008, DirecTV and Dish Network subscriber numbers are 17.6 million and 13.67 million respectively. In Europe, the 2nd largest market following N. America, it accounts for approximately 27% of the global market. Also, BSkyB of News Corp. Group, the largest DTH service provider in UK, has expanded its services from providing videos and TV programs to data communications, interactive TV, HDTV, Internet connection, and multimedia broadcasting services. The subscriber numbers of BSkyB increase to 9.2 millions due to promotions and developments of multi-output LNB and HD services. The Japanese market where the major satellite TV broadcast service providers are SkyPerfecTV and Direct Japan leads the Asian sector. Other markets such as China and India are expected to become the next highly developed areas for satellite TV broadcasting due to their rapidly developing economy and their strong demands for satellite DTH services.

MTI’s LNB products are sold mainly in the US, European, Middle Eastern, and Asian markets. The R&D team has concentrated on development of high-end satellite LNB converters for the North American market and exhibited remarkable performance in 2008. In this fiscal year, the North American market remains one of MTI’s main focuses and continued growth in sales and revenues is expected. For the European sector, MTI aims to become one of the major satellite LNB converter suppliers on the satellite TV market, and will continue improving distribution channels in order to boost market share. As a result, customer satisfaction and market needs will be guaranteed. Moreover, MTI will also focus on developments in Mexican and Indian markets due to the strong demands in these emerging markets.

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Very Small Aperture Terminal (VSAT) Very Small Aperture Terminal (VSAT) is a specialized service that provides bidirectional voice, data communication, and Internet content services to remote locations with sparse users who are inaccessible to wired network services. In recent years, the entire satellite communication market has progressed from providing traditional countryside voice telephone and ISDN services, to broadband satellite applications. In the frequency spectrum,

satellite communication has also advanced from the Ku band to the even higher Ka band frequency. The current major market for broadband satellite communication is North America, with over 60% of the market share, while the Asian markets hold an approximate 20% market share. According to NSR market prediction, suppliers of customer premise equipment (CPE) for broadband satellite will experience an annual 6.3% growth rate. WildBlue is the worldwide first service provider for commercial Ka-band broadband satellite service, which has reached around 400K subscribers as of today. HugheNet has also launched the Ka-band service since Q2 2008, and rapidly grow with 100K subscribers till now. In Asia, Thaicom IPSTAR is the main Ku band broadband satellite project, which the coverage areas include Thailand, Australia, India, China and Philippine, etc. MTI has been devoting itself in developing & manufacturing VSAT transceivers & outdoor units for more than 20 years, and has been the substantial major supplier of world class system integrators. In addition to C and Ku band, MTI has also started providing Ka band transceiver since 2005, and accounts for more than 90% market share.

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Digital Microwave Radio

Digital Microwave Radio Systems benefit from quick distribution and low cost advantages, and have been commonly adopted by mobile communication service providers as the cellular backhaul for base stations worldwide. On the communications market today, wireless transmission must support

multiple transmission modes on a software/hardware platform, including Ethernet, STM1/OC3, E3/DS3 or E1/DS1. It should also have the capacity to change throughput rates and select radio frequency channel bandwidth to save upgrading cost for operators in the future. MTI’s microwave radio transceivers support the software programmable bandwidth allocation and scalable network capacity required by major wireless communications equipment manufacturers. By leveraging the advantage of low cost manufacturing base in China Wuxi, MTI has successfully established units the manufacturing capability and capacity for full band outdoor unit (ODU) and transceivers (XCVRs), and further strengthen the product competency. Merger & Acquisition has been a trend in global microwave radio industry since 2006. MTI’s two major strategic partners have also completed their mergers in early 2007 respectively. Based on the well-established long-term partnership, MTI has been aggressively pursuing more new opportunities to extend the product availability after the mergers, which is also one of main goal in 2009.

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Mobile Base Station The global mobile communications business has triggered an explosion in demand for high-bandwidth backbone networks for its wireless broadband access. The Market Intelligence & Consulting Institute (MIC) estimated that the global Mobile communication services market will reach US$922 billion in 2011, accounting for 59% of

total global communication market. In contrast, the fixed-line telecommunications products has stagnated at US$650 billion, continuing to decline to 40%.

The growth of the China mobile communications market has been the most significant, triggered by the demand of a full-scale deployment of 3G networks in 2009 across the country. The investments made by mobile services vendors are expected to reach staggering double-digit growth rates, which let China become a unique success story among current global recession. In May 2008, China has finally awarded its long awaited 3G licenses to three service providers—China Mobile (TD-SCDMA), China Telecom (CDMA2000) and China Unicom (WCDMA). Each of these service providers possesses not only fixed-line but also mobile infrastructure , which is one of the main reasons for the growth in China's wireless infrastructure in 2009. MTI’s main products focus for mobile communication base stations is Power Amplifiers (PA). Mass production and shipment of power amplifiers designed and manufactured for CDMA2000/WCDMA 3G base stations by GPCS, MTI’s subsidiary, began in 2004 and accumulated sales already reached 140,000 units by 2008. This product not only helps MTI’s major partner, Alcatel Lucent, establish mobile communication networks in North America but also assists other clients in shooting for projects in China markets.

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Wireless LAN

With their design and manufacturing expertise in wireless microwave technology, MTI entered the WLAN arena in the year 2005. With the goal of designing carrier-grade public network equipment, MTI will bring the Wi-Fi experience to the outdoor world. MTI provides WLAN products including: Access Points for long distance WLAN and Wireless Outdoor Bridge for public Hot-Spots that will support IEEE802.11a/b/g protocols. While the products feature a broader cover range, more stable service quality, and longer product lifespan. MTI continuously work on cooperation projects with communication equipment makers in China market in 2009.

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Worldwide Interoperability for Microwave Access (WiMAX)

According to market research, it showed that there were nearly 3 Million WiMAX subscribers worldwide as of 2008 Q3. The number of users is expected to nearly double by the end of 2009, and to increase further to 130 million in 2012, signaling rapid growth . Due to the the increased demand of mobility, 802.16e will be the main stream to drive the market. Moreover,

emerging countries may take the lead in mobile WiMAX growth, which is predicted that the emerging markets will account for 55% of WiMAX subscribers by 2012. MTI has been actively investing in WiMAX product development, in order to keep up with market trends and expand revenue sources. With more than 20-year experiences in development and manufacturing of the outdoor units (ODU), MTI focuses on Outdoor CPE and Base Station Radio Unit in WiMAX field, which differentiates MTI from other domestic competitors. MTI’s WiMAX Outdoor CPE covers frequency of 2.3, 2.5, 3.5, and 10.5 GHz and equips with network management function, such as TR069 and etc., which can fulfill various clients’ needs in deploying WiMAX networks in various locations. Currently, 802.16d and 802.16e CPE have been in mass production, and shipment began in 2008.

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Financial Review

The following sections review the consolidated financial results of Microelectronics Technology, Inc. and its subsidiaries for the year 2008 and 2007.

Selected Financial Data (consolidated)

2008 2007

(Expressed in thousands of New Taiwan dollars, except per share data) Income Statement Data: Net operating revenues 8,024,462 7,054,693 Operating costs (6,493,475

)(5,629,623

) Gross profit 1,530,987 1,425,070 Operating expenses (1,117,624

)(902,409)

Operating income 413,363 522,661 Non-operating income (expenses) (59,627) (12,794) Income before income tax 353,736 509,867 Income tax income (expense) 16,534 (64,211)

Cumulative effect of changes in accounting principles

- -

Minority interest (16,047) 8,293 Net income 354,223 453,949 Earnings Per Share Data: Net earnings per share (NT$) (1) 0.85 1.07 Balance Sheet Data Total assets 8,915,241 8,892,245 Current liabilities 3,176,130 2,771,780 Long-term liabilities 75,000 250,000 Other liabilities 509,214 365,286 Stockholders' equity 5,154,897 5,505,179 (1) Based on weighted average outstanding common shares.

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Consolidated Results of Operations The following discussion should be read in conjunction with the Company's consolidated financial statements, together with the notes thereto, included elsewhere in this report.

Net Operating Revenue

MTI had a record high operating performance in year 2008. The consolidated net revenue increased by 14 percent over 2007 and reached NT$8,024 million. Our satellite communications sector which includes LNB and VSAT, and telecommunications sector each contributed 56 percent and 44 percent of total revenue, respectively.

LNB business was the main contributor to our revenue growth and accounted for 44% of total net operating revenue. Mobile business accounted for 18% of total net operating revenue and nearly doubled over 2007, signaling rapid growth. Radio and VSAT businesses continued to be a stable base to our total revenue and accounted for 22% and 12% of total net operating revenue, respectively.

Radio22%

VSAT12%

LNB44%

Mobile18%

others4%

Sales by Product

Gross Profit

22% 20%19%

-200400600800

1,0001,2001,4001,600

2006 2007 200810%

15%

20%

25%

30%

Gross Profitas a % of net sales

Mill

ion

in N

TD

The consolidated gross profit in 2008 was NT$1,531 million, which represented 19% of the total consolidated operating revenue. Compared to 2007, the consolidated gross profit increased by 7 percent. The growth of consolidated gross profit was contributed by not only MTI’s product development and market exploration but also its cost-effective manufacture.

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Operating Expenses and Income

Consolidated operating expenses in 2008 were NT$1118 million. Among operating expenses, general and administrative expenses accounted for 19%, while R&D and marketing expenses together accounted for 81%. We spent 25% more on R&D and marketing expenses over 2007. This is a reflection of our endeavor to safeguard our

technological advantages and enhance our market position.

902

1118

789

14%14% 12%

0

200

400

600

800

1000

1200

2006 2007 20080%

5%

10%

15%

20%

25%

OperatingExpense% of net revenue

Mill

ion

in N

TD

Consolidated operating income in 2008 was NT$413 million. Operating profit from telecommunications accounted for 32% while operating profit from satellite communications accounted for 68%, same as 2007.

Non-Operating Income and Loss

With regard to consolidated non-operating income, there was a loss of NT$60 million in 2008. This included inventory reserve of NT$13 million and investment loss of NT$57 million. Compared to our revenue size, non-operating loss was insignificant.

(13)

(60)(44)

(80)(60)(40)(20)

-0.74%-0.75%-0.18%0

204060

2006 2007 2008-10%

-5%

0%

5%

10%

Non-Operating Income (Loss)% of net revenue

Mill

ion

in N

TD

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Cash Flows and Net Cash

300

847 810

0

250

500

750

1000

2006 2007 2008

Cash Flow from Operating Activities

Mill

ion

in N

TD

MTI ended year 2008 with a strong consolidated balance sheet including NT$2,938 million of cash and cash equivalents. Cash flow from operating activities showed a net cash generation of NT$810 million, a result of effective cash management.

Consolidated net cash position at the end of 2008 was NT$1,903 million. Due to the global financial crisis, MTI has taking more stringent approach in managing its short-term investment portfolios by 1) decreasing short-term money market funds, 2) making value adjustments on current financial instruments at cost base and financial assets at fair value to reflect current values and future expectations, and 3) increasing cash and equivalents on hand to support working capital demand and capital expenditure. MTI group has held sufficient cash and equivalents to support

itself to overcome this economic downturn.

1755

21781903

0

500

1000

1500

2000

2500

2006 2007 2008

Mill

ion

in N

TD

Net Cash

Taxation

MTI carried forward deferred income tax assets of NT$151 million as of December 31, 2008. In accordance with the implementation of Alternative Minimum Tax, NT$50 million income tax payable in 2008 were expected. However, MTI has established a global operation center in Taiwan in 2008, contributing to income tax savings of NT$68 million and, as a result, a consolidated income tax benefits of NT$16 million.

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Net Income After Tax

MTI’s consolidated net income after tax in 2008 was NT$354 million, equivalent to basic earnings per common share of NT$ 0.85, compared to NT$ 1.07 per share of last year. Fully diluted earnings per share decreased 21% to NT$ 0.84 in 2008 from NT$ 1.06 in 2007.

20%25%30%35%40%45%50%55%60%

2006 2007 2008140%

180%

220%

260%

300%

Total liabilities to total assets ratio

Current Ratio

Tota

l lia

bilit

ies

to to

tal a

sset

s ra

tio

Cur

rent

Rat

io

Liquidity and Capital Structure

As of December 31 2008, our total assets were NT$8,915 million and total liabilities were NT$3,760 million. Total liabilities to total assets ratio increased to 42 percent from 38 percent. Current ratio was 210% in 2008, a slight decrease compared to 2007. However, it still reflects a strong balance sheet with substantial liquidity.

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REPORT OF INDEPENDENT ACCOUNTANTS

PWCR08000355 To the Board of Directors and Stockholders of Microelectronics Technology, Inc. We have audited the accompanying consolidated balance sheets of Microelectronics Technology, Inc. and its subsidiaries (together referred herein as the Group) as of December 31, 2008 and 2007, and the related consolidated statements of income, of changes in stockholders’ equity and of cash flows for the years then ended, expressed in thousands of New Taiwan dollars. These financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the “Rules Governing the Examination of Financial Statements by Certified Public Accountants” and generally accepted auditing standards in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Microelectronics Technology, Inc. and its subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for the years then ended in conformity with the “Rules Governing the Preparation of Financial Statements by Securities Issuers” and generally accepted accounting principles in the Republic of China. PricewaterhouseCoopers March 9, 2009 Taiwan, 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 uditing standards generally accepted in the Republic of China, and their applications in practice. a

MICROELECTRONICS TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

DECEMBER 31, (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

2008 2007 2008 2007 AMOUNT % AMOUNT % AMOUNT % AMOUNT %

The accompanying notes are an integral part of these consolidated financial statements.

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ASSETS LIABILITIES AND STOCKHOLDERS' Current Assets EQUITY Cash and cash equivalents (Note 4(1)) $ 2,923,405 33 $ 2,872,903 32 Current Liabilities Financial assets at fair value through Short-term loans (Note 4(8)) $ 1,098,582 12 $ 1,088,877 12 profit or loss - current (Note 4(2)) 313,688 3 448,862 5 Financial liabilities at fair value Financial assets carried at cost - through profit or loss - current current (Note 4(5)) 14,352 - 370,325 4 (Note 4(9)) - - 1,688 - Accounts receivable (Note 4(3)) 1,976,253 22 1,493,805 17 Accounts payable 1,325,406 15 1,023,992 12 Other receivables 78,468 1 125,930 1 Income tax payable (Note 4(17)) 50,483 1 24,605 - Inventories (Note 4(4)) 1,183,943 13 1,285,901 15 Accrued expenses (Note 5) 390,799 4 337,986 4 Prepayments 48,450 1 47,618 1 Other payables 93,520 1 50,325 1 Deferred income tax assets - current Long-term liabilities - current (Note 4(17)) 111,913 1 87,238 1 portion (Notes 4(10) and 6) 175,000 2 175,000 2 Other current assets - other (Note 6) 6,584 - - - Accrued warranty liabilities 36,632 - 39,324 - Total current assets 6,657,056 74 6,732,582 76 Other current liabilities - other 5,708 - 29,983 -Funds and Investments Total current liabilities 3,176,130 35 2,771,780 31 Financial assets carried at cost - Long-term Liabilities (Notes 4(10) and noncurrent (Note 4(5)) 774,938 9 880,805 10 6) Property, Plant and Equipment, Net Long-term loans 75,000 1 250,000 3 (Notes 4(6) and 6) Other Liabilities Buildings 852,614 10 869,255 10 Accrued pension liabilities (Note Machinery and equipment 2,063,317 23 1,779,322 20 4(16)) 223,020 3 221,410 3 Transportation equipment 2,167 - 2,561 - Guarantee deposits received (Note 6) 286,194 3 125,987 1 Office equipment 92,846 1 75,775 1 Deferred income tax liabilities - Leasehold improvements 153,317 2 72,412 1 noncurrent (Note 4(17)) - - 17,889 - Cost and revaluation increments 3,164,261 36 2,799,325 32 Total other liabilities 509,214 6 365,286 4 Less: Accumulated depreciation ( 1,920,396) ( 22) ( 1,754,147) ( 20) Total liabilities 3,760,344 42 3,387,066 38 Construction in progress and Stockholders' Equity prepayments for equipment 16,299 - 124,246 1 Common stock (Note 4(11)) 4,084,750 46 4,363,290 49 Total property, plant and equipment, net 1,260,164 14 1,169,424 13 Capital Reserves (Note 4(12)) Intangible Assets Paid-in capital in excess of par Goodwill 62,835 1 62,126 1 value of common stock 59,451 1 42,639 - Deferred pension costs (Note 4(16)) - - 2,064 - Capital reserve from conversion of Total intangible assets 62,835 1 64,190 1 convertible bonds 28,676 - 34,207 - Other Assets Additional paid-in capital - Refundable deposits 7,479 - 2,471 - treasury stock transactions (Note Deferred expenses (Note 4(7)) 113,461 1 42,773 - 4(14)) - - 18 - Deferred income tax assets - Capital reserve from long-term noncurrent (Note 4(17)) 39,308 1 - - investments 1,642 - 1,642 - Total other assets 160,248 2 45,244 - Retained Earnings (Note 4(13)) Legal reserve 124,982 1 79,587 1 Undistributed earnings 564,482 6 792,509 9 Other Adjustments to Stockholders' Equity Cumulative translation adjustments 224,471 3 152,664 2 Unrecognized pension cost (Note 4(16)) - - ( 71) - Treasury stock (Note 4(14)) - - ( 9,543) - Stockholders' equity 5,088,454 57 5,456,942 61 Minority interest 66,443 1 48,237 1 Total stockholders' equity 5,154,897 58 5,505,179 62 Commitments And Contingent Liabilities (Notes 5 and 7) TOTAL LIABILITIES AND TOTAL ASSETS $ 8,915,241 100 $ 8,892,245 100 STOCKHOLDERS' EQUITY $ 8,915,241 100 $ 8,892,245 100

MICROELECTRONICS TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS FOR EARNINGS PER SHARE)

2008 2007 AMOUNT % AMOUNT %

The accompanying notes are an integral part of these consolidated financial statements.

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Operating Revenues Sales (Note 5) $ 8,039,415 100 $ 7,086,991 100 Sales returns ( 14,713) - ( 29,070) - Sales discounts ( 240) - ( 3,228) -Net Sales 8,024,462 100 7,054,693 100 Cost of goods sold (Notes 4(19) and 5) ( 6,493,475) ( 81) ( 5,629,623) ( 80)Gross profit 1,530,987 19 1,425,070 20Operating Expenses (Note 4(19)) Sales and marketing expenses ( 450,700) ( 6) ( 365,003) ( 5) General and administrative expenses ( 207,295) ( 2) ( 173,303) ( 2) Research and development expenses ( 459,629) ( 6) ( 364,103) ( 5)Total Operating Expenses ( 1,117,624) ( 14) ( 902,409) ( 12)Operating income 413,363 5 522,661 8Non-operating Income And Gains Interest income 84,074 1 112,115 1 Gain on valuation of financial assets (Note 4(2)) 17,985 - - - Gain on valuation of financial liabilities (Note 4(9)) 1,688 - - - Gain on disposal of property, plant and equipment (Note 5) 720 - - - Foreign exchange gain, net 1,085 - 2,905 - Other non-operating income (Note 5) 46,209 1 49,139 1Non-operating Income and Gains 151,761 2 164,159 2Non-operating Expenses and Losses Interest expense ( 63,624) ( 1) ( 68,300) ( 1) Loss on valuation of financial assets (Note 4(2)) - - ( 10,792) - Loss on valuation of financial liabilities (Note 4(9)) - - ( 1,656) - Loss on disposal of property, plant and equipment - - ( 803) - Loss on disposal of investments ( 1,313) - ( 559) - Provision for loss on inventory obsolescence and market price declines (Note 4(4)) ( 12,909) - ( 26,283) ( 1) Impairment loss (Notes 4(5)(7)) ( 56,730) ( 1) ( 46,302) ( 1) Other non-operating losses (Note 5) ( 76,812) ( 1) ( 22,258) -Non-operating Expenses and Losses ( 211,388) ( 3) ( 176,953) ( 3)Income from continuing operations before income tax 353,736 4 509,867 7Income tax benefit (expense) (Note 4(17)) 16,534 - ( 64,211) ( 1)

Consolidated net income $ 370,270 4 $ 445,656 6Attributable to: Equity holder of the Company $ 354,223 4 $ 453,949 6 Minority interest 16,047 - ( 8,293) -

$ 370,270 4 $ 445,656 6 Before Tax After Tax Before Tax After Tax Basic earnings per common share (in dollars) (Note 4(18))

Net income $ 0.90 $ 0.85 $ 1.22 $ 1.07Fully diluted earnings per common share (in dollars) (Note 4(18))

Net income $ 0.89 $ 0.84 $ 1.21 $ 1.06

MICROELECTRONICS TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS OTHERWISE INDICATED)

Capital Reserves Retained Earnings

Common stock

Paid-in

capital in excess of par value

of common stock

Paid-in capital in excess of par value

of convertible

bonds Treasury

stock Long-term

investments Legal

reserve Undistributed

earnings

Unrealized loss on

financial instruments

Cumulative translation

adjustments Unrecognized pension cost

Treasury stock

Minority interest

Total

The accompanying notes are an integral part of these consolidated financial statements.

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2007

Balance at January 1, 2007 $ 4,291,480 $ - $ 34,207 $ $ 1,642 $ 37,228 $ 758,646 ( $ 862) $ 136,832 $ - ( $ 78,922) $ 15,393 $ 5,195,647 Employee stock warrants converted to common stock 71,810 42,639 - - - - - - - - - 114,449 Appropriation of 2006 earnings Legal reserve - - - - 42,359 ( 42,359) - - - - - - Cash dividends - - - - - ( 273,656) - - - - - ( 273,656) Employees' cash bonus - - - - - ( 71,629 29) ) - - - - - 71 ( ,6 Remuneration to directors and supervisors - - - - - ( 7,163) - - - - - ( 7,163) Net income for 2007 - - - - - 453,949 - - - - ( 8,293) 445,656 Transfer of treasury stock to employees - - - - - - - - - 69,379 - 69,394 Proportional adjustment due to change of investee's equity - - - - - ( 25,279) - - - - 25,279 - Proportionate share in adjustment of subsidiaries' unrealized gain on financial instruments - - - - - - 862 - - - - 862 Translation adjustment of long-term investments - - - - - - - 15,832 - - - 15,832 Proportionate share in adjustment of subsidiaries' unrecognized pension cost - - - - - - - - ( 71) - - ( 71)

Minority interest - - - - - - - - - - 15,858 15,858

Balance at December 31, 2007 $ 4,363,290 $ 42,639 $ 34,207 $ $ 1,642 $ 79,587 $ 792,509 -$ $ 152,664 ( $ 71) ( $ 9,543) $ 48,237 $ 5,505,179

2008

Balance at January 1, 2008 $ 4,363,290 $ 42,639 $ 34,207 $ $ 1,642 $ 79,587 $ 792,509 $ - $ 152,664 ( $ 71) ( $ 9,543) $ 48,237 $ 5,505,179 Employee stock warrants converted to common stock 29,300 16,812 - - - - - - - - - 46,112 Appropriation of 2007 earnings Legal reserve - - - - 45,395 ( 45,395) - - - - - - Cash dividends - - - - - ( 313,777) - - - - - ( 313,777) Employees' cash bonus - - - - - ( 40,855) - - - - - ( 40,855) Remuneration to directors and supervisors - - - - - ( 4,086) - - - - - ( 4,086) Net income for 2008 - - - - - 354,223 - - - - 16,047 370,270 Purchase of treasury stock - - - - - - - - - ( 481,983) - ( 481,983) Write-off of treasury stock ( 307,840) - ( 5,531) ( ) - - ( 178,137) - - - 491,526 - - Translation adjustment of long-term investments - - - - - - - 71,807 - - - 71,807 Proportionate share in adjustment of subsidiaries' unrecognized pension cost - - - - - - - - 71 - - 71

Minority interest - - - - - - - - - - 2,159 2,159

Balance at December 31, 2008 $ 4,084,750 $ 59,451 $ 28,676 $ $ 1,642 $ 124,982 $ 564,482 -$ $ 224,471 $ - $ - $ 66,443 $ 5,154,897

MICROELECTRONICS TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

2008 2007

CASH FLOWS FROM OPERATING ACTIVITIES

Consolidated net income $ 370,270 $ 445,656

Adjustments to reconcile consolidated net income to net cash provided by operating activities:

Provision for bad debts 3,708 3,097

Depreciation and amortization 272,018 224,931

(Gain) loss on valuation of financial assets and liabilities, net ( 19,673) 12,448

(Gain) loss on disposal of property, plant and equipment, net ( 720) 803

Loss on disposal of investments 1,313 559

Provision for loss on inventory obsolescence and market price decline 12,909 26,283

Impaiment loss 56,730 46,302

Provision for loss of idle assets 636 -

Changes in assets and liabilities

Decrease in financial assets at fair value through profit or loss 138,954 41,023

Notes and accounts receivable ( 385,865) ( 81,732)

Other receivables 48,463 ( 43,014)

Inventories 137,963 82,073

Prepaid expenses and prepayments 1,145 ( 16,057)

Deferred income tax ( 82,033) 25,773

Accounts payable 148,436 39,092

Income tax payable 25,878 16,683

Accrued expense 45,473 ( 30,708)

Other payables, advance receipts and other current liabilities 34,753 32,011

Reserve for product warranty ( 1,718) 6,218

Accrued pension expense 1,610 15,108

Net cash provided by operating activities 810,250 846,549

(Continued)

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MICROELECTRONICS TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

2008 2007 CASH FLOWS FROM INVESTING ACTIVITIES

Decrease in available-for-sale financial assets $ - $ 2,071

Decrease in financial assets carried at cost - current 345,937 30,373

Decrease (increase) in financial assets carried at cost - noncurrent 52,516 ( 32,660)

Liquidation dividends from financial assets carried at cost 648 -

Increase in goodwill - ( 62,126)

Increase in restricted assets ( 6,203) -

Return of capital from liquidation of a subsidiary - 4,551

Acquisition of property, plant and equipment ( 307,176) ( 251,072)

Proceeds form disposal of property, plant and equipment 12,916 600

Increase in refundable deposits ( 5,651) ( 862)

Increase in deferred charges ( 98,873) ( 34,506)

Net cash used in investing activities ( 5,886) ( 343,631)

CASH FLOWS FROM FINANCING ACTIVITIES

(Decrease) increase in short-term loans ( 5,455) 162,103

Increase in guarantee deposits received 152,621 45,071

Repayment of long-term loans ( 175,000) ( 75,000)

Redemption of convertible bonds - ( 300)

Proceeds from disposal of treasury stocks - 69,394

Employee stock warrants exercised 46,112 114,449

Purchase of treasury stocks ( 481,983) -

Payment of cash dividends ( 313,777) ( 273,656)

Payment of employees' bonus ( 40,855) ( 71,629)

Payment of remuneration to directors and supervisors ( 4,086) ( 7,163)

Minority interest - 15,858

Net cash used in financing activities ( 822,423) ( 20,873)

Effect of change in exchange rates 68,561 ( 10,002)

Effect of initial consolidation of a subsidiary - 118,730

Increase in cash and cash equivalents 50,502 590,773

Cash and cash equivalents at beginning of year 2,872,903 2,282,130

Cash and cash equivalents at end of year $ 2,923,405 $ 2,872,903

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Interest paid $ 64,876 $ 68,927

Income tax paid $ 35,531 $ 21,755

INVESTING ACTIVITIES PARTIALLY PAID BY CASH:

Increase in property, plant and equipment $ 303,615 $ 240,863

Less:property, plant and equipment payable at the end of the year ( 25,339) ( 28,900)

Add:property, plant and equipment payable at the beginning of the year 28,900 39,109

Cash paid $ 307,176 $ 251,072

The accompanying notes are an integral part of these consolidated financial statements.

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MICROELECTRONICS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS,

EXCEPT AS OTHERWISE INDICATED) 1. HISTORY AND ORGANIZATION

1) The Company was approved under the "Statute for the Establishment and Administration of Science-Based Industrial Park" in September 1982 and was incorporated on March 31, 1983 under the Company Law of the Republic of China (R.O.C.). The Company commenced its operations on April 29, 1983. The Company is mainly engaged in the design and manufacture of wireless communication products and standard products, including microwave products, digital microwave radio transceivers and systems, VSAT, TVRO/DBS products and microwave components. The Company also manufactures custom designed products suited to the specific requirements of its customers' various microwave systems.

As of December 31, 2008, the Company and its subsidiaries had approximately 1,940 employees. 2)

Company name Location Primary business

Sasson International Holdings Inc.

British Virgin Islands Note 1

Global PCS Inc. Hsinchu, Taiwan Note 2Millennium Telecom Taipei, Taiwan Note 1Jupiter Network Corp. British Virgin Islands Note 1Zeus Communications, Inc.

Delaware, America Note 1

Jupiter Technology (Wuxi) Inc.

Wuxi, China Note 3

Welltop Technology Co., Ltd.

British Virgin Islands Note 1/Note 3

EURO-MTI S.A.R.L. Luxembourg Note 1Optical Microwave Network Inc.

California, America Note 3

MTI Laboratory, Inc. California, America Note 3Greast Communication Technology Co., Ltd.

Nanking, China Note 4100.00%51.76%

100.00%51.76%

85.29%99.99%100.00%

100.00%

100.00%

100.00%

100.00%

100.00%

100.00%

100.00%

100.00%100.00%

85.29%99.99%100.00%100.00%

2008 2007100.00%

Subsidiaries included in the consolidated financial statements and their changes in 2008 and 2007:

and indirect holding interest Percentage of direct

100.00%

Note 1. Primary business: Investments planning and consulting.Note 2. Primary business:Manufacture of advanced personal communication products

and wireless access products.Note 3. Primary business:Satellite and micro wave communication and consulting

services.Note 4. Primary business:The research, development, design, production, manufacturing

and sales of WCDMA technique and the radio frequency sub-system.

3) Subsidiaries not included in the consolidated financial statements: None.4) Adjustments for subsidiaries with different balance sheet dates: None.5) Special operating risks in foreign subsidiaries: None.6) Nature and extent of the restrictions on fund remittance from subsidiaries to the parent

company: None7) Contents of subsidiaries’ securities issued by the parent company: None.8) Information on convertible bonds and common stock issued by subsidiaries:

a. Sasson International Holdings Inc. increased cash capital by issuing new common stock amounting to US$10,000 thousand in February and June 2008.b. Jupiter Technology (Wuxi) Inc. increased cash capital by issuing new common stock amounting to US $10,000 thousand in November 2008.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying financial statements of the Company and its subsidiaries (together referred herein as the Group) are prepared in accordance with the “Rules Governing the Preparation of Financial Statements by Securities Issuers” and accounting principles generally accepted in the Republic of China. The Group’s accounting policies are summarized below:

1) Principles of consolidationAll majority-owned subsidiaries and controlled entities are included in the consolidated financial statements. The Group prepares quarterly consolidated financial statements which include the subsidiaries in which the Company owns more than 50% of voting rights or has effective control. All significant intercompany accounts and transactions are eliminated in the consolidated financial statements.

2) Classification of current and noncurrent itemsa. Assets that meet one of the following criteria are classified as current assets; otherwise they are

classified as noncurrent assets: (1) Assets arising from operating activities that are expected to be realized or consumed, or are

intended to be sold within the normal operating cycle; (2) Assets held mainly for trading purposes; (3) Assets that are expected to be realized within twelve months from the balance sheet date; (4) Cash and cash equivalents, excluding restricted cash and cash equivalents and those that are

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to be exchanged or used to pay off liabilities more than twelve months after the balance sheet date.

b. Liabilities that meet one of the following criteria are classified as current liabilities; otherwise they are classified as noncurrent liabilities: (1)Liabilities arising from operating activities that are expected to be paid off within the normal

operating cycle; (2)Liabilities arising mainly from trading activities; (3)Liabilities that are to be paid off within twelve months from the balance sheet date; (4)Liabilities for which the repayment date cannot be extended unconditionally to more than

twelve months after the balance sheet date. 3) Translation of financial statements of foreign subsidiaries into New Taiwan dollars

Assets and liabilities of foreign subsidiaries are translated into New Taiwan dollars at the exchange rates prevailing at the balance sheet date; equity accounts are translated at historical rates, except for beginning retained earnings which is transferred from prior years’s ending retained earnings; and income and expense accounts are translated into New Taiwan dollars at the average rates of exchange prevailing during the year. Translation adjustments are taken directly to a separate component of stockholders’ equity, “cumulative translation adjustment.”

4) Translation of foreign currency transactionsa. The Group maintains its accounts in New Taiwan dollars. Transactions denominated in foreign

currencies are translated into New Taiwan dollars at the spot exchange rates prevailing at the transaction dates.

b. Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rates prevailing at the balance sheet date. Exchange gains or losses are recognized in profit or loss.

5) Cash and cash equivalentsCash equivalents are short-term, highly liquid investments, which are readily convertible to known amount of cash and which are subject to insignificant risk of changes in value resulting from fluctuations in interest rates. The Group’s consolidated statements of cash flows are prepared on the basis of cash and cash equivalents.

6) Financial assets and financial liablities at fair value through profit or lossa. Financial assets and financial liabilities at fair value through profit or loss are initially

recognized at fair value. Those in the form of equity securities are accounted for using the trade date accounting, while those in the form of debt securities, beneficiary certificates, and derivative instruments are accounted for using settlement date accounting.

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b. These financial instruments are subsequently remeasured and stated at fair value, and the gain or loss is recognized in profit or loss. The fair value of listed equity securities, closed-end funds and beneficiary certificates are determined by the closing prices at the balance sheet date. The fair value of open-end funds is determined by the net asset value at the balnace sheet date.

c. When a derivative is an ineffective hedging instrument, it is initially recognized at fair value on the date a derivative contract is entered into and is subsequently remeasured at its fair value. If a derivative is a non-option derivative, the fair value initially recognized is zero.

7) Financial assets carried at costa. Financial assets carried at cost are initially recognized at fair value plus transaction costs and

are accounted for using trade date accounting. b. Impairment loss is recognized when there is objective evidence that the assets are impaired.

Reversal of the foregoing impairment loss is not allowed. 8) Allowance for doubtful accounts

Allowance for doubtful accounts is provided according to the evaluation of the collectibility of ending balances of notes receivable, accounts receivable and other receivables.

9) InventoriesInventories are stated at the lower of cost or market value. Cost is determined using the weighted-average method. Market value is determined based on the replacement cost for raw materials and supplies, and net realizable value for work in process and finished goods. Allowance for slow moving items and decline in market value is provided when necessary.

10) Long-term equity investments accounted for under the equity methoda. Long-term equity investments in which the Company holds more than 20% of the investee

company’s voting shares or has the ability to exercise significant influence on the investee’s operational decisions are accounted for under the equity method. The excess of the initial investment cost over the acquired net asset value of the investee attributable to goodwill is no longer amortized, effective January 1, 2006. Retrospective adjustment of the amount of goodwill amortized in previous years is not required. The excess of acquired net asset value of investee over the initial investment cost is allocated proportionately and applied as a reduction to the book values of identifiable noncurrent assets, and any remaining amount of such excess after this allocation is credited to extraordinary gains. However, negative goodwill prior to December 31, 2005 is continuously amortized.

b. The capital reserve and long-term equity investment amounts are adjusted for the variance between the investment costs and net asset values of the investee companies due to the disproportionate acquisition of shares in connection with the capital increase by the investee company.

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11) Property, plant and equipmenta. Property, plant and equipment are stated at cost. Depreciation is provided on a straight-line

method over the estimated useful lives of the assets. Salvage value of the fully depreciated assets that are still in use is depreciated based on the re-estimated economic service lives.

b. The estimated useful lives are 5 to 40 years for buildings and improvements and 3 to 8 years for other fixed assets.

c. Major improvements and renewals are capitalized and depreciated accordingly. Maintenance and repairs are expensed as incurred.

12) Deferred chargesDeferred charges are stated at cost and amortized on a straight-line method over the assets’ estimated economic service lives.

13) Impairment of non-financial assets The Group recognizes impairment loss when there is indication that the recoverable amount of an asset is less than its carrying amount. The recoverable amount is the higher of the fair value less costs to sell and value in use. The fair value less costs to sell is the amount obtainable from the sale of the asset in an arm’s length transaction after deducting any direct incremental disposal costs. The value in use is the present value of estimated future cash flows to be derived from continuing use of the asset and from its disposal at the end of its useful life. When the impairment no longer exists, the impairment loss recognized in prior years shall be recovered.

14) Reserve for product warrantyUnder the warranty provisions of its sales contracts, the Group is obligated to correct any deficiencies in its products that occur under normal operation within a certain period after the date of sale. The Group provides a reserve for product warranty based on a certain percentage of the sales value of each product line, taking into account historical experience.

15) Retirement plan and net periodic pension cost Under the defined benefit pension plan, net periodic pension costs are recognized in accordance with the actuarial calculations. Net periodic pension costs include service cost, interest cost, expected return on plan assets, and amortization of unrecognized net transition obligation and gains or losses on plan assets. Unrecognized net transition obligation is amortized on a straight-line basis over 12 years. Under the defined contribution pension plan, net periodic pension costs are recognized as incurred.

16) Income taxa. The Group uses inter-period as well as intra-period tax allocation for income tax. Any

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over-provision or under-provision of prior years’ income tax liabilities is included in current year’s income tax expense.

b. Any tax credit arising from the purchase of machinery and equipment and research and development expenditures is recognized in the year the related expenditure is incurred.

c. The additional 10% income tax on undistributed earnings is recognized in the year the stockholders approve the resolution to retain the earnings.

17) Treasury stockTreasury stocks are provided in accordance with R.O.C. SFAS No. 30 “Accounting for Treasury Stocks”. The related policies are summarized as follows: a. Treasury stock is stated at cost and is reported under stockholders’ equity.

b. Upon disposal of the treasury stock, if the disposal price exceeds the cost of the treasury stock disposed of, the difference is credited to “capital reserve - treasury stock”. If the disposal price is less than the cost, the difference is debited to the capital reserve arising from the treasury stock of the same class. Where the capital reserve is insufficient to cover the difference, the remaining amount is charged against retained earnings.

c. When treasury stock is retired, the treasury stock account is credited and all capital account balance related to the treasury shares, including capital reserve from paid-in capital in excess of par are debited on a proportionate basis. When the book value of treasury stock is higher than capital account balance, including additional paid-in capital in excess of par, the difference is debited to offset against capital reserve from treasury stock. However, when the balance of the capital reserve account is insufficient to offset the difference, the remaining amount shall be charged against retained earnings. When the book value of treasury stock is less than the capital account balance, including additional paid-in capital in excess of par, the difference is credited to capital reserve from treasury stock.

18) Share-based payment - employee compensation plan a. The employee stock options granted from January 1, 2004 through December 31, 2007 are

accounted for in accordance with EITF 92-070, EITF 92-071 and EITF 92-072 “Accounting for Employee Stock Options”, prescribed by the R.O.C. Accounting Research and Development Foundation. Under the share-based employee compensation plan, compensation cost is recognized using the intrinsic value method and pro forma disclosures of net income and earnings per share are prepared in accordance with the R.O.C. SFAS No.39, “Accounting for Share-based Payment”.

～28～

b. For share-based payment agreements with grant date set on or after January 1, 2008, the Company shall measure the services received during the vesting period by reference to the fair value of the equity instruments granted and account for those amounts as payroll expense during that period.

19) Employees’ bonuses and directors’ and supervisors’ remunerationEffective January 1, 2008, pursuant to EITF 96-052 of the Accounting Research and Development Foundation, R.O.C., dated March 16, 2007, “Accounting for Employees’ Bonuses and Directors’ and Supervisors’ Remuneration”, the costs of employees’ bonuses and directors’ and supervisor’ remuneration are accounted for as expenses and liabilities, provided that such recognition is required under legal or constructive obligation and the amounts can be estimated reasonably. However, if the accrued amounts for employees’ bonuses and director’ and supervisors’ remuneration is significantly different from the actual distributed amounts resolved by the stockholders at their annual stockholders’ meeting subsequently, the differences shall be recognized as gain or loss in the following year. In addition, in accordance with EITF 97-127 of the Accounting Research and Development Foundation , R.O.C., dated March 31, 2008, “Criteria for Listed Companies in Calculating the Number of Shares of Employees’ Stock Bonus”, the Company calculates the number of shares of employees’ stock bonus based on the closing price of the Company’s common stock at the previous day of the stockholders’ meeting held in the year following the financial reporting year, after taking into account the effects of ex-rights and ex-dividends.

20) Revenue and expenses Revenue is recognized when goods are shipped or installed. Costs and expenses are recognized as incurred.

21) Capital expenditures and expenses Costs and expenditures which have future economic benefits are capitalized as assets. Otherwise they are expensed when incurred.

22) Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses during the reporting period. Actual results could differ from those assumptions and estimates.

23) Settlement date accountingIf an entity recognizes financial assets using settlement date accounting, any change in the fair value of the asset to be received during the period between the trade date and the settlement

～29～

date/balance sheet date is not recognized for assets carried at cost or amortized cost. For financial assets or financial liabilities classified as at fair value through profit or loss, the change in fair value is recognized in profit or loss. For available-for-sale financial assets, the change in fair value is recognized directly in equity.

3. CHANGES IN ACCOUNTING PRINCIPLES (1) Share-based payment - employee compensation plan

Effective January 1, 2008, the Group adopted the R.O.C. SFAS No. 39, “Accounting for Share-based Payment”. The adoption of SFAS No. 39 had no significant effect on the Group’s financial statements as of and for the year ended December 31, 2008.

(2) Employees’ bonuses and directors’ and supervisors’ remuneration Effective January 1, 2008, the Group adopted EITF 96-052 of the Accounting Research and Development Foundation, R.O.C., dated March 16, 2007. As a result of the adoption of EITF 96-052, net income decreased by $18,215 and earnings per share decreased by $0.04 (in dollars) for the year ended December 31, 2008.

4. DETAILS OF SIGNIFICANT ACCOUNTS (1) Cash and cash equivalents

2008 2007Cash on hand 652$ 891$ Checking accounts 559 462 Saving accounts 247,799 359,378 Time deposits 2,674,395 2,466,972 Cash equivalents - Repurchase bonds - 45,200

2,923,405$ 2,872,903$

December 31,

(2) Financial assets at fair value through profit or loss - current

2008 2007Financial assets for trading - beneficiary certificates 304,000$ 455,365$ Fair value adjustment 89 7,101)(

304,089 448,264 Fair value adjuestment - financial derivatives 9,599 598

313,688$ 448,862$

December 31,

a. In 2008 and 2007, gain and loss recognized for the changes in the fair values of financial

assets at fair value through profit or loss were $17,985 (which consists of gain on valuation of beneficiary certificates of $8,984 and gain on valuation of financial derivatives of $9,001)

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and $10,792 (which consists of loss on valuation of beneficiary certificates of $8,447 and loss on valuation of financial derivatives of $2,345), respectively.

b. The nature and contractual terms of derivatives are as follows:

Contract amount Fair value Contract periodUSD 13.5 million 3,243$ 2008.10.27~2009.03.05GBP 2,535 thousand 6,356 2008.09.18~2009.03.26

9,599$

Contract amount Fair value Contract periodUSD 2 million 446$ 2007.12.20~2008.04.17USD 4 million 152 2007.12.20~2008.03.27

598$

The purpose of the forward exchange contracts is to hedge the change of exchange rate dueto accounts receivable, without adopting hedge accounting.

Forward exchange contractsForward exchange contracts

December 31, 2008

December 31, 2007

Forward exchange contractsNon-delivery forward contracts

(3) Notes and accounts receivable, net

2008 2007Notes recivable 1,722$ 2,338$ Accounts receivable 2,017,555 1,529,896

2,019,277 1,532,234 Allowance for bad debts 43,024)( 38,429)(

1,976,253$ 1,493,805$

December 31,

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(4) Inventories, net

2008 2007Raw materials 527,000$ 632,882$ Work in process 365,926 305,613 Finished goods 446,951 465,732 Inventory in transit 3,111 4,190

1,342,988 1,408,417 Allowance for market value decline and obsolescence of inventories 159,045)( 122,516)(

1,183,943$ 1,285,901$

December 31,

(5) Financial assets carried at cost

Ownership Ownershippercentage Amount percentage Amount

Current Short-term money market funds - 14,352$ - 369,796$ Global liquidity funds - - - 529

14,352$ 370,325$ Noncurrent East Asia Network Taiwan Inc. (EANT) Note 1 320,000$ Note 1 320,000$ Taicom Capital Ltd. 11.43 261,095 11.43 258,149 Optical Scientific Inc. 11.00 82,558 11.00 113,505 Firetide Inc. 1.67 32,800 1.67 32,430 Kopin Taiwan Corporation 2.85 25,400 2.84 42,300 Intelligent Epitaxy Technology, Inc. 0.34 19,680 0.34 19,458 NAVII - LP 5.16 19,384 5.16 45,979 Taiwan Aerospace Corp. 0.48 11,851 0.48 12,500 Applied Wireless Identifications Group Inc. 0.81 - 2.08 16,215 Digital United Holdings Limited - - 0.32 13,848 Others Note 2 2,170 Note 2 6,421

774,938$ 880,805$

December 31,2008 2007

a. In 2008, the Group recognized a permanent impairment loss in value of NAVFII-LP,

Applied Wireless Identifications Group, Inc., Transcom Inc. and Kopin Taiwan Corporation amounting to $55,068 using cost value method.

b. Taiwan Aerospace Corp. distributed liquidation dividends in the third quarter of 2008. The Group accordingly adjusted long-term investment amount based on its receipt of dividends.

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c. In 2007, the Group recognized a permanent impairment loss in value of Intelligent Epitaxy Technology, Inc., Mobile Telesystems, Inc., Taiwan Aerospace Corp., Easy Data Communication Co., Ltd. and Transcom Inc. amounting to $45,015 using cost value method.

d. All shares of Intelligent Epitaxy Technology Inc., Bayspec Inc. and part of the shares of Taicom Capital Ltd. are preferred stocks.

e. The above financial assets are not traded in active markets and their fair values cannot be reliably measured.

Note 1: The investment in EANT represents all of the Class 1 preferred shares issued by EANT. According to EANT’s Articles of Incorporation, other than the fixed annual dividends (29% of the par value of the preferred shares), the preferred shareholders are not entitled to the distribution of earnings for common stockholders. No dividends are paid in the years when the company has no earnings. The dividends in arrears are paid in subsequent years when the company has earnings. Preferred shareholders have no claim in respect to the issuance of new shares by capitalization of additional paid-in capital or retained earnings. Preferred and common shareholders have equal voting and election rights. The company may at any time use earnings or proceeds from issuance of new shares to redeem preferred shares at its par value following the resolution adopted during a common shareholders’ meeting. Starting 2006, the annual dividend rate of preferred shares was changed to 0%. When the company is dissolved or liquidated, preferred and common shareholders have equal right to the remaining assets, and the board of directors has the authority to decide whether the dividends in arrears on preferred shares will be paid before distributing the remaining assets. In addition, effective October 19, 2006 (deferred from January 19, 2006), the Group has the right to ask East Asia Crossing Inc. (EACI), a shareholder of EANT, to buy back all the preferred shares held by the Group at the original cost plus the dividends outstanding. EACI decided to dispose the shares of EANT and started to search for possible buyers. EACI subsequently entered into an agreement with Connect Holdings Limited (CHL) to sell the shares of EANT to CHL or a specified third party and to transfer the associated rights and obligations to CHL. On October 16, 2006, upon the request of the Group in order to protect its interests, Asia Netcom Corporation Limited (ANC), the holding company of EACI, issued a written commitment that in the event the regulatory restriction on the equity investments held by foreign investors is not removed and the Group cannot exercise

～33～

its right to sell the preferred shares to CHL, ANC agrees to grant a zero-interest loan in five installments totaling US$9,700 thousand to the Group during the period from 2006 to 2010 based on the joint venture agreement. The Group shall pledge the preferred shares in EANT as the collateral for the loan. (See Note 6 for details.) As of February 2, 2009, the first installment of the loan in the amount of US$8,730 thousand was granted to the Group. As the Company held preferred stocks with voting rights, it has properly reclassified the account of preferred stocks in accordance with R.O.C. SFAS No. 34, “Accounting for Financial Instruments” following the ARDF 98-072 of the R.O.C. Accounting Research and Development Foundation, dated February 27, 2009.

Note 2: As the book values of shares of Bayspec, Inc., Transcom Inc. and NAVFII-GP held by the Company were minimal, they were presented together as “Others”.

(6) Property, plant and equipment, net

BuildingsMachineryTransportation equipmentFurniture and fixturesLeasehold improvements

Accumulated depreciationConstruction in progress and prepayments for equipment

Note 6.

December 31,2008 2007

852,614$ 2,063,317

2,167 92,846

1,169,424$

153,317 3,164,261 1,920,396)(

16,299

Property, plant and equipment were pledged as security for long-term loans. Please refer to

1,260,164$

869,255$ 1,779,322

2,561 75,775 72,412

2,799,325 1,754,147)(

124,246

(7) Deferred expenses

Land-used RightComputer softwareOthers

December 31,

39,185$ 68,127

6,149

-$ 37,270

5,503

In 2008, the subsidiary - Global PCS Inc. accounted for impairment loss of $1,662.

42,773$

2008 2007

113,461$

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(8) Short-term loans

Type of loan 2008 2007Materials, L/C loans 597,262$ 919,556$ Pre-export loans 272,929 59,996 Operating loans 228,391 109,325

1,098,582$ 1,088,877$ Interest rate per annum 1.90%~5.39% 5.38%~7.00%

December 31,

(9) Financial liabilities at fair value through profit or loss - current

2008 2007 Fair value adjustment - financial derivatives -$ 1,688$

December 31,

a.

b. The nature and contractual terms of derivatives are as follows:

Contract Amount Fair Value Contract PeriodUSD 13 million 1,688$ 2007.10.19~2008.03.13Forward exchange contracts

The forward exchange contracts are sell USD buy NTD to hedge the change of exchange ratedue to export, without adopting hedge accounting.

In 2008 and 2007, gain and loss recognized for the changes in fair values of the financial assetsat fair value through profit or loss were $1,688 and $1,656, respectively.

December 31, 2007

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(10) Long-term liabilities

Interest rateBank name and type of loan and repayment term

2008 2007 Mega International Commerical Bank Project loan Fixed rate-repayable in lump 100,000$ 100,000$

sum in May 2009 Syndication loan Floating rate-equal annual 150,000 225,000

installments ending October 2010

Project loan Fixed rate-repayable in lump - 100,000 sum in May 2008

250,000 425,000 current portion 175,000)( 175,000)(

75,000$ 250,000$ Interest rates per annum 3.74%~4.25% 3.71%~4.25%

December 31,

(1)The syndicated loan led by Mega International Commercial Bank was obtained to finance

working capital. Under the terms of the loan agreement, the Company is required to maintain certain annual consolidated financial ratios, including current ratio, liability ratio, and interest coverage ratio.

(2)Please refer to Note 6 for guarantee provided for long-term loans. (11) Common stock

a. Pursuant to the resolution adopted at the special stockholders' meeting held on December 11, 1993, and after obtaining approval from the SFC, the Company issued 2,600,000 units of global depositary receipts (GDRs) in Europe, Asia and USA, representing 13,000,000 shares of common stock (Deposited Shares). Total amount received by the Company in relation to these GDRs on May 24, 1994 was $837,333. The main terms and conditions of the GDRs are as follows: (1) Voting

Holders of GDRs have no right to directly exercise voting rights or attend the Company's stockholders' meeting. A holder or holders together holding at least 51% of the GDRs outstanding at the relevant record date of the stockholders' meeting may instruct the Depositary to vote in the same direction in respect of one or more resolutions to be proposed at the meeting.

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(2) Sale and withdrawal of GDRs Under the current R.O.C. law, the shares represented by the GDRs may not be withdrawn by holders of GDRs commencing three months after the initial issue of GDRs. A holder of GDR may, provided that the Company has delivered to the custodian physical share certificates in respect of the Deposited Shares, request the Depositary to sell or cause to be sold on behalf of such holder the shares represented by such GDRs.

(3) Dividends GDR holders are entitled to receive dividends to the same extent as the holders of common stock subject to the terms of the Deposit Agreement and applicable laws of the R.O.C.

(4) As of December 31, 2008, the Company had 23,005 units of GDRs outstanding. b. As of December 31, 2008, the Company's authorized share capital was 700 million common

shares (of which 50 million shares are reserved for corporate bonds with subscription right, stock warrants and special shares with subscription right issued) with a par value of NT$10 (in dollars) per share. As of December 31, 2008, the total issued and outstanding common shares were 408,475 thousand shares.

(12) Capital reserves Pursuant to the R.O.C Securities and Exchange Law, capital reserve shall be exclusively used to cover accumulated deficits or to increase capital and shall not be used for any other purpose. However, capital reserve arising from paid-in capital in excess of par value on issuance of common stock and donations can be capitalized once a year, provided that the Company has no accumulated deficits and the amount to be capitalized does not exceed 10% of the paid-in capital.

(13) Retained earnings a. The R.O.C. Company Law requires that at least 10% of the net income each year, less losses

of prior years, shall be set aside as legal reserve until the accumulated reserve equals the total registered capital of the Company and can be used to offset against accumulated deficit.

b. In accordance with the R.O.C. Securities and Exchange Act, the Company allocates a certain portion of earnings as special reserve and shown as deduction in stockholders’ equity.

c. In accordance with the Company's Articles of Incorporation, 1% and no less than 7% of net income, after deducting legal reserve and special reserve, shall be distributed as directors' and supervisors' remuneration and employees' bonus, respectively, at the time dividends are declared.

d. As the Company operates in the stable growth stage, the residual dividend policy is adopted taking into consideration the Company’s funding requirements, future capital expenditures

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and long-term financial plans. According to the dividend policy adopted by the Board of Directors, 30% ~ 100% of the Company’s total dividends distributed shall be first appropriated as cash dividends; the remaining will then be appropriated as stock dividends. The dividends appropriation, including appropriation terms, timing, amount and types, is adjusted based on economic and industrial developments and the Company’s profitability and shall be proposed by the Board of Directors and resolved by the stockholders.

The appropriation of 2007 and 2006 earnings has been resolved at the stockholders’ meetinge. on June 19, 2008 and June 11, 2007, respectively.

2006 2007Dividends per Dividends per

share share(in dollars) Amount (in dollars)Amount

45,395$ 4 359 2, $ Legal reserve 313,777 0 $ .75 2 ,656 73 0 $ .65Cash dividends

Directors’ and supervisors’ remuneration 4,086 7 63 ,1

40,855

As of March 9, 2009, the appropriation of 2008 earnings has not been resolved by the Board of Directors. Information on the appropriation of the Company’s earnings as resolved by the Board of Directors and approved by the stockholders will be posted in the "Market Observation Post System" at the website of Taiwan Stock Exchange.

According to the resolution for the appropriation of 2007 earnings, if employees’ bonus and directors’ and supervisors’ remuneration were deemed as expenses for 2007, the imputed earnings per share was $0.96 (in dollars) per share.

f. The amounts of employees’ bonus and directors’ and supervisors’ remuneration for 2008 were estimated at $22,615 and $3,231, respectively, which were based on a certain percentage, prescribed by the Company's Articles of Incorporation, of the Company’s 2008 net income after taking into account the legal reserve and other factors, and were recognized as operating costs or operating expenses for that year. Information on the appropriation of the Company’s employees’ bonus and directors’ and supervisors’ remuneration as resolved by the Board of Directors and approved by the stockholders will be posted in the “Market Observation Post System” at the website of the Taiwan Stock Exchange.

Employees’ cash bonus 7 629 1, Total 404,113$ $ 3 ,807 94

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(14) Treasury stock

Purpose Beginning Shares Increase Decrease Ending SharesTransfer to employees 984 - 984)( - Write-off of treasury stock - 29,800 29,800)( -

984 29,800 30,784)( -

Purpose Beginning Shares Increase Decrease Ending SharesTransfer to employees 8,138 - 7,154)( 984

2008 (In thousands of shares)

2007 (In thousands of shares)

a. On November 8, 2005, the Board of Directors adopted a resolution to acquire treasury stock

during the period from November 9, 2005 to January 8, 2006. The Company may repurchase 15 million shares at a price between $5.68 to $14.15 (in NT dollars) per share. As of December 31, 2008, the Company purchased 9,738 thousand shares and transferred 8,754 thousand shares to employees and wrote-off shares of treasury stock totaling 984 thousand shares.

b. On January 23, 2008, the Board of Directors adopted a resolution to conduct the third treasury stock repurchase, intending to buy back 17,800 thousand shares of the Company’s outstanding stocks as treasury stocks with the repurchasing price ranging from $10.68 (in dollars) per share to $27.58 (in dollars) per share. A total of 17,800 thousand shares had been bought back as treasury stocks amounting to $292,607 during the period from January 24, 2008 to March 23, 2008. As of December 31, 2008, treasury stocks 17,800 thousand shares had been bought back and retired.

c. On June 19, 2008, the Board of Directors adopted a resolution to conduct the fourth treasury stock repurchase, intending to buy back 12,000 thousand shares of the Company’s outstanding stocks as treasury stocks with the repurchasing price ranging from $11.27 (in dollars) per share to $27.96 (in dollars) per share. A total of 12,000 thousand shares had been bought back as treasury stocks amounting to $189,376 during the period from June 20, 2008 to August 19, 2008. As of December 31, 2008, treasury stocks totaling 12,000 thousand shares had been bought back and retired.

d. Pursuant to the R.O.C. Securities and Exchange Law, treasury shares shall not exceed 10% of its total outstanding shares. In addition, the aggregate acquisition cost shall not exceed the sum of the balances of retained earnings, paid-in capital in excess of par value and realized capital surplus.

e. The treasury stock shall not be pledged, nor be entitled to any shareholder privilege.

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(15) Share-based payment - employee compensation plan

a.

Type of Quantity Contract Vesting arrangement Grant date granted period conditions

First Employee stock 2002.05.23 14,011 6 years Note 1Second Employee stock options

2003.01.07 18,000 6 yearsNote 1

Third Employee stock 2007.12.26 17,800 8 years Note 2

As of December 31, 2008, the Company’s share-based payment transactions are set forthbelow:

Note 1: 50% can be exercised after 2 years of grant; 75% can be exercised after 3 years of grant; 100% can be exercised after 4 years of grant.Note 2: Professional: 25% can be exercised after 3 years of grant; 50% can be exercised after 4 years of grant; 75% can be exercised after 5 years of grant; 100% can be exercised after 6 years of grant.

Management: 25% can be exercised after 4 years of grant; 50% can be exercised after 5 years of grant; 75% can be exercised after 6 years of grant; 100% can be exercised after 7 years of grant.

b.

No. ofWeighted-average

exercise price No. ofWeighted-average

exercise priceshares (in dollars) shares (in dollars)

Options outstanding at beginning of year

33,637 $ 17.50 32,011 $ 17.41

Options granted - - 17,800 18.45Distribution of stock dividends/adjustments for number of shares granted for one unit of option - - - -Options waived - - - -Options exercised ( 2,930) 15.74 ( 7,181) 15.94Options revoked ( 5,121) ( 8,993) -Options outstanding at end of 25,586 16.88 33,637 17.50Options exercisable at end of year 7,786 15,837

December 31, 2007December 31, 2008Details of the employee stock options are set forth below:

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c. As of December 31, 2008 and 2007, the exercise price of stock options outstanding was $13.30~18.45 (in dollars) and $14.70~$20.90 (in dollars), respectively, and the weighted- average remaining vesting period was 4.76 years and 0.74 years, respectively.

d. The following sets forth the pro forma net income and earnings per share based on the assumption that the compensation cost is accounted for using the fair value method for the stock options granted before the effectivity of R.O.C. SFAS No. 39,“Accounting for Share- based Payment＂：

For the year endedDecember 31, 2008

Net income Net income stated in the statement of income 354,223$ Pro forma net income 316,720

Basic earnings per share(EPS) (in dollars)

EPS stated in the statement of income 0.85 Pro forma EPS 0.76

Diluted EPS (in dollars) EPS stated in the statement of income 0.84 Pro forma EPS 0.76

ExpectedExercise Expected Expected dividend Risk-free Fair value

Type of price price vesting yield interest per unit arrangement Grant date (in dollars) volatility period rate rate (in dollars)

Employeestock

2007.12.26 $ 18.45 49.51% 6.3 years 0% 2.44% 9.35$

Employeestock

2007.12.26 $ 18.45 50.93% 6.8 years 0% 2.44% 9.87$

For the stock options granted before January 1, 2008 with the compensation cost accountedfor using the fair value method, their fair value on the grant date is estimated using theBlack-Scholes option-pricing model. The weighted-average parameters used in theestimation of the fair value are as follow:

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e.

QuantityType of granted Contract Vesting

arrangement Grant date (in thousand) period conditions

Employee stock 2002.2.8~2002.4.30 1,622 6 years 2 years’ service

As of December 31, 2008 and 2007, Global PCS Inc., a subsidiary of the Company share-based payment transactions are set forth below:

Weighted-average

Weighted-average

No. of shares exercise price No. of shares exercise price(in thousand) (in dollars) (in thousand) (in dollars)

Options outstanding atbeginning

460 $ 10 522 $ 10

Options granted - - - -Distribution of stock dividends/adjustments for number of shares granted for one unit of option - - - -Options waived - - - -Options exercised - - - -Options revoked ( 460) ( 62) -Options outstanding at end of - - 460 $ 10Options exercisable at end of - 460Options approved but not yet issued at the end of the year - 36

All employee stock options of Global PCS Inc. have been revoked on April 30, 2008.

December 31, 2007December 31, 2008Details of the employee stock options are set forth below:

(16) Pension expense a. All of the regular employees of the Company and its subsidiary, Global PCS Inc., are

covered by a non-contributory and funded defined benefit pension plan. Employees are entitled to 2 base units for each year of service for the first 15 years and 1 base unit for each additional year thereafter, up to a maximum of 45 units. The benefits provided are based on the length of service and the average salaries of the last six months prior to retirement. Under the plan, the Company and its subsidiary, Global PCS Inc., contribute 2% of monthly salaries to an independent pension fund deposited with the Bank of Taiwan. The net pension

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cost recognized under the defined benefit plan for the years ended December 31, 2008 and 2007 was $30,111 and $26,497, respectively. The balance of the retirement fund deposited with Bank of Taiwan was $186,728 and $195,710 as of December 31, 2008 and 2007, respectively. The pension fund balance is not reflected in the financial statements. The funded status of the pension plan of the Company and its subsidiary, Global PCS Inc., are as follows:

(1) Actuarial assumptions - Microelectronics Technology, Inc.

(2) Actuarial assumptions - Global PCS Inc.

Discount rateFuture salary increase rateExpected rate of return on plan assets

2008 20072.75%2.50%1.50%

3.75%3.50%2.75%

2008 2007Discount rate 2.75% 3.75%Future salary increase rate 2.50% 3.00%Expected rate of return on plan assets 1.50% 2.75%

(3)

Benefit obligation Vested benefit obligation Non-vested benefit obligation Accumulated benefit obligation Additional benefits based on future salariesProjected benefit obligationPlan assets at fair valueFunded statusUnrecognized transition obligationUnrecognized prior service costUnrecognized net actuarial lossAdditional accrued pension liabilitiesUnrecognized pension cost Accured pension liabilitiesVested benefit

Funded status of the pension plan:December 31,2008 December 31,2007(Measurement date) (Measurement date)

34,938)($ 281,308)( 316,246)( 125,542)( 441,788)( 186,728 255,060)(

24,331 10,103)( 19,079

- -

221,753)($ 37,788$

23,384)($ 294,267)( 317,651)( 167,700)( 485,351)( 195,710 289,641)(

31,302 11,787)( 51,415

2,064)( 83)(

220,858)($ 23,489$

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(4)

Service costInterest costExpected return on plan assetsAmortization of unrecognized net transition obligationUnrecognized prior service costUnrecognized pension lossNet periodic pension cost 30,111$

11,337$ 14,786

5,064)(

6,971 1,684)(

151 26,497$

6,971 1,684)(

255

12,964$ 16,987

5,382)(

The Company and its' subsidiary, Global PCS Inc., recognized net pension cost based onthe actuarial report. Net pension cost components are as follows:

December 31,2008 2007

b. Effective July 1, 2005, under the new “Labor Pension Act” (the “Act”), the Company and its subsidiary, Global PCS Inc., set up a defined contribution pension plan. Under the Act, current employees have the option to participate in the defined contribution pension plan. The Company and its subsidiary contribute monthly an amount of at least 6% of the employees’ monthly salaries and wages to the employees’ individual pension accounts at the Bureau of Labor Insurance. Benefits accrued are portable upon termination of employment. Pensions are paid by monthly installments or in lump sum based on the accumulated balance of the employees’ individual pension accounts. The net pension costs recognized under the defined contribution pension plan for the years ended December 31, 2008 and 2007 were $19,819 and $18,346, respectively.

c. The Company’s subsidiaries, Jupiter Technology (Wuxi) Inc. and Greast Communication Technology Co., Ltd. are required to participate in a government pension scheme whereby it shall pay monthly an amount of 20% of the employees’ monthly salaries and wages to the employees’ individual pension accounts to a government-managed fund. Under the scheme, retirement benefits of existing and retired employees are to be provided by the government-managed fund and the said subsidiaries have no further obligations beyond the monthly contributions. The net pension costs recognized under the defined contribution plan for the years ended December 31, 2008 and 2007 were $27,934 and $16,229, respectively.

d. The Company’s subsidiaries, MTI Laboratory Inc. and Optical Microwave Network Inc., maintain a 401(k) retirement/savings plan (the Plan) for all employees who are over the age of 21 and have completed three months of service. Participants may make voluntary contributions up to the maximum amount allowable by law. Those subsidiaries may make a discretionary matching contribution equal to the percentage of each participant’s

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contributions up to a maximum of 2.25% of participant’s compensation. No contributions were made to the Plan for the years ended December 31, 2008 and 2007.

(17) Income tax expense

a. Details of deferred income tax assets and liabilities are as follows:December 31,

20072008Deferred income tax assets - current 1 $ 11,913 1 $ 14,677Less: Valuation allowance -

( 27,439) 111,913 87,238

Deferred income tax assets - noncurrent 89,787 5 7,224Less: Valuation allowance ( 50,479) ( 75,113)

39,308 ( 17,889) 151,221 $ $ 69,349

b. The temporary differences and the related deferred income tax assets (liabilities) are as follows:

Amount Tax effect Amount Tax effectCurrent items:Temporary differences Warranty provision 31,375$ 7,844$ 15,146$ 3,786$ Allowance for bad debts 113,426 28,356 113,609 28,402 Unrealized loss (gain) on foreign exchange 7,980 1,995 505)( 126)( Provision for inventory loss 168,101 42,025 160,462 40,115 Unrealized gain on valuation of financial instrument 10,688)( 2,672)( - - Others 4,158)( 1,040)( 8,263)( 2,066)(

76,508 70,111 Investment tax credits 35,405 28,368 Loss carryforwards - 16,198 Less: Valuation allowance - 27,439)(

111,913 87,238 Non-current items:Temporary differences Loss on idle assets 50,386$ 12,597 50,139$ 12,535 Accrued pension liabilities 224,504 56,126 217,510 54,377 Investment income accounted for under the equity method 859,452)( 214,863)( 1,011,099)( 252,775)( Loss on obsolescence of property, plant and equipment - - 17,259 4,315 Others 14,091 3,523 4,593 1,148

142,617)( 180,400)( Investment tax credits 182,056 188,136 Loss carryforwards 50,348 49,488 Less: Valuation allowance 50,479)( 75,113)(

39,308 17,889)( 151,221$ 69,349$

December 31,2008 2007

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c. Income tax expense and income tax payable are reconciled as follows:

2008 2007Income tax at the statutory tax rate 128,051$ 144,414$ Tax effect of permanent differences 50,398)( 48,089)( Tax effect of investment tax credits 72,186)( 45,555)( Tax effect of loss carryforwards - 15,238 Tax effect of minimum tax 14,018 - Under provision of prior year's income tax 10,926 8,688 Tax effect of valuation allowance 51,929)( 13,363)( 10% tax on unappropriated earnings 4,984 2,878 Income tax (benefit) expense 16,534)( 64,211 Less:Net change in deferred income tax assets 82,033 25,773)( Under provision of prior years' income tax 10,926)( 8,688)( Prepaid and withholding taxes 4,090)( 5,145)( Income tax payable 50,483$ 24,605$ Income tax refund of subsidiaries -$ 209$

December 31,

d. The Company is eligible for income tax exemption for a period of four consecutive years due to an expansion of production equipment through increase in capital. The effective date of this exemption is to be decided by the Company within two years from the start of operation of the new machinery and equipment. The deferral of the four-year tax holiday shall not exceed four years. The details are as follows:

Capital increase method Tax-exempt periodUnappropriated earnings and employees' January 1, 2006~December 31, 2009 bonus capitalized in 2001Unappropriated earnings and employees' January 1, 2010~December 31, 2014 bonus capitalized in 2002

e. The Company’s subsidiaries Jupiter Technology (Wuxi) Inc.and Greast Communication Technology Co., Ltd. are foreign-invested manufacturing enterprises established in the People’s Republic of China (PRC). Under the PRC tax regulations, they are exempt from corporate income tax for the first and second profit-making years and are subject to a 50% reduction of corporate income tax from the third through fifth profit-making years. Jupiter Technology (Wuxi) Inc. and Greast Communication Technology Co., Ltd. are eligible for the tax exemption starting from 2006 and 2008, respectively.

f. As of December 31, 2008, the Company’s income tax returns through year 2006 have been assessed and approved by the Tax Authority. Some operating expenses and investment tax

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credits on research and development expenditures were assessed to be reduced for the year 2005. The Company has filed an appeal for reassessment with the Tax Authority in April 2008 to contest the Tax Authority’s decision. The Company’s subsidiaries, Global PCS Inc.’s income tax returns through 2006 have been assessed and approved by the Tax Authority; Millennium Telecom Inc’s, income tax returns through 2007 have been assessed and approved by the Tax Authority.

g.

Investment tax credits29,807$ 46,152 69,316 72,186

217,461$

Loss carryforwards 50,348$

As of December 31, 2008, the details of unused investment tax credits and loss carryforwardsare as follows:

Year of expiration

Year of expiration 2009 and thereafter

2009201020112012

h. As of December 31, 2008 and 2007, the Company’s deductible credit account balance for stockholders’ income tax was $23,622 and $17,512, respectively, and the creditable ratio was 4.18% and 6.49% for 2008 and 2007, respectively.

i. The undistributed retained earnings as of December 31, 2008 and 2007 have been earned after 1998.

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(18) Earning per share (EPS)

Weighted-averageoutstanding

Income common Incomebefore shares before

income tax Net income (in thousands) income tax Net incomeConsolidated net income 353,736$ 370,270$ Basic earnings per shareNet income attributable to common stockholders of parent company 374,798$ 354,223$ 417,268 0.90$ 0.85$ Effect of dilutive securities - Employee bonus - - 1,975 Employee stock warrants - - 150 Diluted earnings per shareNet income attributable to common stockholders of parent company, including the effect of dilutive common stock equivalents 374,798$ 354,223$ 419,393 0.89$ 0.84$

Amount Earnings per share

For the year ended December 31, 2008

(in dollars)

Effective January 1, 2008, as employees’ bonus could be distributed in the form of stock, the diluted EPS computation shall include those estimated shares that would be increased from employees’ stock bonus issuance in the weighted-average number of common shares outstanding during the reporting year, which take into account the dilutive effects of stock bonus on potential common shares; whereas, basic EPS shall be calculated based on the weighted-average number of common shares outstanding during the reporting year that include the shares of employees’ stock bonus for the appropriation of prior year earnings, which have already been resolved at the stockholders’ meeting held in the reporting year. Since capitalization of employees’ bonus no longer belongs to distribution of stock dividends, the calculation of basic EPS and diluted EPS for all periods presented shall not be adjusted retroactively. However, the accounting treatment for the appropriation of employees’ bonus for 2007 earnings resolved at the stockholders’ meeting held in 2008 is still in accordance with the regulations on capitalization of employees’ bonus under paragraphs 19 and 39 of R.O.C. SFAS No. 24, “Earnings per Share”.

Weighted -averageoutstanding

Income common Incomebefore shares before

income tax Net income (in thousands) income tax Net incomeConsolidated net income 509,867$ 445,656$ Basic earnings per shareNet income attributable to common stockholders of parent company 518,160$ 453,949$ 425,513 1.22$ 1.07$

Effect of dilutive securities - Employee stock warrants - - 3,347 Diluted earnings per shareNet income attributable to common stockholders of parent company, including the effect of dilutive common stock equivalents 518,160$ 453,949$ 428,860 1.21$ 1.06$

Amount (in dollars)Earnings per share

For the year ended December 31, 2007

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Operatingcosts

Operatingexpenses

Non-operatingexpenses Total

Operatingcosts

Operatingexpenses

Non-operatingexpenses Total

Personnel expenses Salary 442,822$ 349,960$ -$ 792,782$ 370,720$ 344,262$ -$ 714,982$ Labor and health insurance 20,324 21,442 - 41,766 21,139 20,729 - 41,868 Pension 25,346 52,518 - 77,864 23,557 37,515 - 61,072 Others 100,842 30,995 - 131,837 77,889 38,049 - 115,938 Depreciation 179,745 51,802 3,409 234,956 158,080 46,123 1,369 205,572 Amortization 16,163 20,899 - 37,062 4,953 14,406 - 19,359

2008 2007For the years ended December 31,

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(19) Personnel, deprecation and amortization expenses

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5. RELATED PARTY TRANSACTIONS 1) Names and relationship of related parties

Names of related parties Relationship with the Company East Asia Network Taiwan (East Asia) Same board chairman Taicom Capital Ltd. (Taicom) Same board chairman

2) Transactions and balances with related partiesa. Accrued expenses

East Asia Network Taiwan2008

For the years ended December 31, 2007

191$ -$

b. Others

Other income - consultant - Taicom Other expenses Rental income

c. The rewards information of main management :

Salaries Bonus Service execution fees Earnings distribution Total

etc.

bonus accrued in current year.

8,474 10,275

5,592 67,812$

9,418 9,589 5,215

66,067$

For the years ended December 31,2008 2007

41,845$ 43,471$

20072008For the years ended December 31,

29,574$ 3,039$ 4,775$

31,286$ 1,101$ 1,151$

5) The relevant information above will be disclosed in the Company’s annual report.

1) Salaries include regular wages, special responsibility allowances, pensions, severance pay

2) Bonus include various bonus and rewards. 3) Service execution fees include travel allowances, dorms & vehicles benefits, etc. 4) Earnings distribution means directors’ and supervisors’ remuneration and employees’

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6. PLEDGED ASSETS

Purpose of pledge Long-term loans Note Short-term loans

East Asia Network Taiwan as collateral for non-interest bearing loans, please refer to Note 4(5).

6,584 709,620$

Note: According to the joint venture agreement, the Group provided preferred stocks in

128,000

558,719$ -

Name of assetsBuildings Long-term investmentSaving accounts

415,036$ 288,000

December 31,2008 2007

430,719$

7. COMMITMENTS AND CONTINGENT LIABILITIES

1) The Company leases land under a non-cancelable operating lease agreement. As of December 31, 2008, the future minimum lease payments under this lease are as follows:

Period Rental payable Present valueJanuary 2009 ~ December 2013 77,036$ 67,801$ January 2014 ~ December 2026 200,293 99,870

277,329$ 167,671$

2) On October 21, 2004, the Company’s European agent, FTA, filed a legal claim against the Company in Luxembourg. The Company has retained attorneys to handle this case. As of March 9, 2009, it is not possible to predict the outcome of this litigation due to pending proceedings. However, management believes that the ongoing lawsuit will not have any significant effect on the Company’s financial statements.

8. SIGNIFICANT CATASTROPHE None.

9. SUBSEQUENT EVENTS None.

1)Financial statement presentation Certain accounts in the 2007 consolidated financial statements have been reclassified with conform to the 2008 consolidated financial statement presentation.

2)Fair value of financial instruments

Book value Market Estimate Book value Market EstimateNon-derivative financial instruments

Financial assets Financial assets with fair value equal to book value 4,992,189$ -$ 4,992,189$ 4,495,110$ -$ 4,495,110$ Financial assets at fair value through profit or loss 304,089 304,089 - 448,264 448,264 - Financial assets carried at cost - current 14,352 - - 370,324 - - Financial assets carried at cost - noncurrent 454,938 - - 560,805 - -

5,765,568$ 5,874,503$

Financial liabilities Financial liabilities with fair value equal to book value 3,281,616)($ -$ 3,281,616)($ 2,691,096)($ -$ 2,691,096)($ Long-term loans 250,000)( - 250,283)( 425,000)( - 424,984)(

3,531,616)($ 3,116,096)($ Derivative financial instruments

Financial assets Forward exchange contracts 9,599$ -$ 9,599$ 598$ -$ 598$ Financial liabilities Forward exchange contracts -$ -$ -$ 1,688)($ -$ 1,688)($

Fair value Fair valueDecember 31, 2008 December 31, 2007

～53～

10. OTHERS

～54～

The methods and assumptions used to estimate the fair values of the above financial instruments are summarized below: a. Financial assets / liabilities with fair value equal to book value: The carrying amounts of

these assets / liabilities approximate fair values due to their short maturities. This applies to cash and cash equivalents, notes and accounts receivable, short-term loans, notes and accounts payable.

b. Financial assets at fair value through profit or loss (non-derivative financial instruments): Instruments classified in this category are mainly investments in open-ended mutual funds. The fair value is determined by the net asset value at the balance sheet date.

c. For long-term loans with floating interest rates, fair values are based on their book value. For long-term loans with fixed interest rates, fair value is estimated based on the discounted future cash flows. Discount rate is determined based on the Company’s credit adjusted borrowing rate on long-term loans, 2.72%, which approximate the floating interest rates.

d. Derivative financial instruments: Fair value is estimated based on the amount receivable from or payable to the counterparty assuming the contracts are terminated at the balance sheet date, which includes the contracts’ unrealized gain or loss.

e. In 2008 and 2007, the gain and loss recognized from the changes in fair values determined using the foregoing valuation techniques amounted to $10,689 and $4,001, respectively.

3) Information on interest rate fluctuation As of December 31, 2008 and 2007, financial assets that are exposed to fair value interest rate risk are $1,186,230 and $1,914,187, respectively; financial liabilities that are exposed to fair value interest rate risk are $100,000 and $200,000, respectively; financial assets that are exposed to cash flow interest rate risk are $1,742,548 and $957,363, respectively; financial liabilities that are exposed to cash flow interest rate risk are $1,248,582 and $$1,313,877, respectively.

4) For available-for-sale financial assets, during the year ended December 31, 2007, the amount recognized directly in equity was $862.

5) Financial risk management The Group, in accordance with its policy on the acquisition and disposal of financial derivatives, has established a risk management program to evaluate and manage the related risk assessment of individual transactions.

6) Information on significant financial risk a. Market risk

(i) Foreign exchange risk

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The majority of the sales and purchases of the Group is denominated in U.S. dollars. Therefore, the fair value of the related assets and liabilities are exposed to foreign exchange rate risk. The Group monitors the fluctuations in foreign exchange rates and adjusts the net positions in each foreign currency, through forward contracts, if necessary, to reduce the market rate risk.

(ii) Price risk The bond fund investments (shown in “Financial assets at fair value through profit or loss”) are determined based on the net asset value of open-end funds. The Group evaluates related investment performances on a periodic basis and does not expect to have significant market risk in these financial assets.

b. Credit riskThe counterparties of the financial derivatives and beneficiary certificates are reputable financial institutions, and the Group also deals with multiple counterparties to diversify the credit risk. The Group believes its exposure to potential default risk is low. The maximum loss to the Group is the book value. The Group has lower significant concentrations of credit risk. It has policies in place to ensure that wholesale sales of products are made to customers with an appropriate credit history. The maximum loss to the Group is the book value of accounts receivable. Loan guarantees provided by the Group are in compliance with the Group’s “Procedures for Provision of Endorsements and Guarantees” and are only provided to affiliated companies which the Group owns directly. As the Group is fully aware of the credit conditions of these related parties, it has not asked for collateral for the loan guarantees provided. In the event that these related parties fail to comply with loan agreements with banks, the maximum loss to the Group is the total amount of loan guarantees as listed above.

c. Liquidity riskThe Group has lower significant concentrations of liquidity risk for forward exchange contracts since the exchange rate was known. For financial assets carried at cost, the Group is exposed to a higher liquidity risk since there is no active market. However, the Group has no intention to hold these financial assets for trading and does not expect to sell these financial assets frequently. Therefore, the exposure to liquidity risk would be effectively reduced. The Group also expects no significant liquidity risk since it has sufficient working capital.

d. Cash flow interest rate riskThe Group’s interest rate risk arises from short-term and long-term borrowings issued at variable rates which expose the Group to cash flow interest rate risk.

c. Details of marketable securities held as of December 31, 2008: Relationship of

Type of marketable Marketable the securities issuers General ledgerInvestor securities securities with the Company accounts Number of shares Book value Percentage Market value (Note)

Microelectronics Beneficiary PCA Well Pool Fund None Financial assets at fair 4,640,300$ 60,500$ - 60,500$ Technology, Inc. certificate value through profit or loss

" " Fuh Hwa Bond Fund " " 3,631,715 50,021 - 50,021 " " UPAMC JAMES BOND FUND " " 6,275,337 100,000 - 100,000 " " ING Taiwan Bond Fund " " 6,041,217 94,018 - 94,018 " Stock Sasson International Holdings Inc. Wholly-owned subsidiary Long-term equity investments 2,350 2,041,285 100.00% 2,041,285

accounted for under the equity method

" " Global PCS Inc. Majority-owned subsidiary " 23,192,499 220,744 85.29% 220,744 " " Millennium Telecom, Inc. " " 18,999,994 146,772 99.99% 146,772 " " Taiwan Aerospace Corp. None Financial assets carried at cost 648,576 11,851 0.48% -

- noncurrent" " Kopin Taiwan Corporation " " 1,795,167 25,400 2.85% -

December 31,2008

(Note): The market value of investments accounted for under the equity method was based on the net asset value of the investee company. Market price of open- end mutual funds is determined based on the net asset value at the balance sheet date.

Pursuant to the disclosure requirements under the Securities and Exchange Regulations, information on subsidiaries is prepared based on each of the subsidiary's audited financial statements.Transactions between parent company and subsidiaries, as provided below, have been eliminated in the consolidation.a. Loans granted during the year ended December 31, 2008: Noneb. Endorsements and guarantees provided by the Company to others as of December 31, 2008:

Ratio ofLimit of Maximum outstanding Amount of Amount of accumulated guarantee Ceiling of the

Relationship with guarantee guarantee amount at Guarantee amount guarantee with amount to net asset outstanding guaranteeGuarantor party Name the Company for such party during 2008 at Dec. 31, 2008 collateral placed value of the Company for the respective party

Microelectronics Jupiter Technology 100% owned subsidiary 5,088,454$ 499,350$ 499,350$ None 9.67% 5,088,454$ Technology, Inc. (Wuxi) Inc.

" Global PCS Inc. 85.29% owned subsidiary 5,088,454 50,000 - None 0.00% 5,088,454

Company being guaranteed

～56～

(1) Related information of significant transactions

11. SPECIAL DISCLOSURE ITEMS

d. Acquisition or sale of the same security with accumulated cost exceeding $100 million or 20% of the Company’s paid-in capital during the year ended December 31, 2008:

Marketable General ledger Number of Number of Number of Gain on Number of Gain onInvestor securities account shares Amount shares Amount shares Selling price Book value disposal shares Amount valuation

Microelectronics UPAMC JAMES Financial assets at - -$ 20,602,224 325,000$ 14,362,887 225,068$ 225,000$ 68$ 6,275,337 100,000$ -$ Technology Inc. BOND FUND fair value through

profit or loss - current

" ITB Ta-Chong Bond Fund

"- - 9,395,223 124,700 9,395,223 125,339 124,700 639 - - -

" ITB 1699 Bond Fund

"- - 37,296,665 473,050 37,296,665 473,688 473,050 638 - - -

" Mega Diamond Bond Fund

"- - 8,546,862 100,000 8,546,862 100,061 100,000 61 - - -

" PCA Well Pool Fund

"776,391 9,849 37,133,233 475,700 33,269,324 425,979 425,549 430 4,640,300 60,000 50

" ING Taiwan Bond Fund

"- - 13,165,817 204,000 7,124,600 110,155 110,000 155 6,041,217 94,000 18

" ING Taiwan Income Fund

"- - 6,212,492 101,000 6,212,492 101,071 101,000 71 - - -

" Sasson Long-term equity 2,350 1,910,295 - 315,751 - - 332,000 - 2,350 1,894,046 147,239 " International investments" Holdings Inc. accounted

for under the equity method

Ending balanceBeginning balance Addition Disposal

e. Acquisition of real estate properties exceeding $100 million or 20% of the Company’s paid-in capital during the year ended December 31, 2008: None.

f. Disposal of real estate properties exceeding $100 million or 20% of the Company’s paid-in capital during the year ended December 31, 2008: None.

～57～

h. Receivables from related parties exceeding $100 million or 20% of the Company’s paid-in capital as at December 31, 2008:

Action adopted

Name of Relationship Accounts Other for overdue Allowance for doubtfulCompany counterparty with the Company receivable receivable Total Turnover rate Amount accounts Subsequent collection accounts provided

Microelectronics Global PCS Inc Majority-owned 567,345$ 72,310$ 639,655$ 3.78 -$ N/A 211,370$ -$ Technology Inc. subsidiary

Balance of receivable from related parties Overdue receivables

g. Purchases from and sales to related parties exceeding $100 million or 20% of the Company’s paid-in capital during the year ended December 31, 2008:

Percentage of Percentage ofRelationship Purchases purchases accounts receivable

Company Counterparty with the Company (Sales) Amount (sales) Term Unit price Term Balance (payable) NoteMicroelectronics Jupiter Technology Wholly-owned subsidiary Purchases 2,311,000$ 40% 30 days N/A N/A 197,870)($ 20% Technology Inc. (Wuxi) Inc.

" MTI Laboratory, Inc. Wholly-owned subsidiary Purchases 253,847 4% 30 days N/A N/A 5,031)( -" Global PCS Inc. Majority-owned subsidiary Sales 1,154,853)( 15% 45 days N/A N/A 567,345 32%

Difference in transaction terms

third party transactions Accounts receivable (payable)Transactionscompared with

i. Derivative financial instruments undertaken during the year ended December 31, 2008: Refer to Notes 4(2), 4(9) and 10.

～58～

a. Related information on companies for the year ended December 31, 2008:Net income Net income

Main December 31, December 31, Number (loss) of the (loss) recognized Investor Investee Location activities 2008 2007 of shares Percentage Book value investee by the Company Note

Microelectronics Technology, Inc.

Sasson International Holdings Inc.

BVI Investment planning and consulting

$975,179 $659,428 2,350 100.00% $ 2,041,285 $ 75,431 $ 75,431 Wholly-owned subsidiary

"Global PCS Inc. Hsinchu,

TaiwanCommunications 231,924 231,924 23,192,499 85.29% 220,744 123,798 105,587 Majority-owned

subsidiary

"Millennium Telecom Inc.

Taipei, Taiwan

Investment planning and consulting

190,000 190,000 18,999,994 99.99% 146,772 ( 665) ( 665)"

Sasson International Holdings Inc.

EURO-MTI S.A.R.L Luxembourg Communications US$15,000(in dollars)

US$15,000(in dollars)

500 100.00% 1,001 - - Wholly-owned subsidiary

"WelltopTechnology Co., Ltd.

BVI Investment planning and consulting

US$2,132,000(in dollars)

US$2,132,000(in dollars)

2,132,000 100.00% 16,013 1,825 1,825"

"Jupiter Network Corp.

BVI"

US$19,149,000(in dollars)

US$10,029,000(in dollars)

19,149,000 100.00% 774,343 83,062 83,062"

"Zeus Communications, Inc.

Delaware, USA "

US$1,922,800(in dollars)

US$1,002,800(in dollars)

1,950 100.00% 77,160 8,179 8,179"

"

Greast Communication Technology Co., Ltd.

Nanjing, China

Communications US$3,970,000(in dollars)

US$3,970,000(in dollars)

115,531,850 48.42% 79,814 ( 4,484) ( 2,171) Investee accounted for under the equity method

Welltop Technology Co., Ltd. Optical Microwave Networks Inc.

California, USA "

US$1,417,600(in dollars)

US$1,417,600(in dollars)

43,800,000 100.00% 927 ( 921) ( 921) Wholly-owned subsidiary

US$500,000 US$500,000(in dollars) (in dollars)

Jupiter Network Corp. Jupiter Technology (Wuxi) Inc.

Wuxi, China"

US$19,110,000(in dollars)

US$10,010,000(in dollars)

- 91.00% 773,746 91,362 83,139"

Zeus Communications, Inc. Jupiter Technology (Wuxi) Inc.

Wuxi, China"

US$1,890,000(in dollars)

US$990,000(in dollars)

- 9.00% 76,524 91,362 8,223"

Jupiter Technology (Wuxi) Inc.

Greast Communication Technology Co., Ltd.

Nanjing, China

"

CNY $2,994,000(in dollars)

CNY $2,994,000(in dollars)

7,972,000 3.34% 13,455 ( 4,484) ( 150) Investee accounted for under the equity method

Initial investment amount Shares held as at December 31, 2008

" MTI Laboratory Inc.

California, USA

500,000" 100.00% 2,722 " 11,199 2,722

～59～

(2) Disclosure information of investee company

b. Loans granted during the year ended December 31, 2008:

Creditor Borrower General

ledger account

Maximumoutstanding balance

during the yearended

December 31, 2008

Balance atDecember31, 2008 Interest rate

Nature ofloan

(Note)

Amount oftransactions

with theborrower

Reason ofshort-termfinancing

Allowance forbad debts Item Value

Limit onloans granted

to a singleparty

Ceiling ontotal loans

grantedSasson International Holdings Inc.

Millennium Telecom, Inc.

Other receivables

$ 170,778 $ 168,264 - b Note Operation $ - None $ - $816,831 $816,831

"Jupiter Technology (Wuxi) Inc.

Other receivables

$ 329,600 $ - - b Note Operation $ - None $ - $816,831 $816,831

Note: a. Business transaction. b. Short-term financing.

Collateral

～60～

c. Endorsements and guarantees provided during the year ended December 31, 2008: None

d. Marketable securities as at December 31, 2008:

Securities held by Type of marketable

securities Marketable securities Relationship of the securities

issuers with the Company General ledger accounts Number of

shares Bookvalue

Ownership(%)

Market value(Note)

Sasson International Holdings Inc.

Stock Euro-MTI S.A.R.L Wholly-owned subsidiary Long-term equity investments accounted for under the equity method

500 $ 1,001 100.00% $ 1,001

" " Welltop Technology Co., Ltd. " " 2,132,000 16,013 100.00% 16,013" " Jupiter Network Corp. " " 19,149,000 774,343 100.00% 774,343" " Zeus Communications, Inc. " " 1,950 77,160 100.00% 77,160" " Greast Communication Technology

Co., Ltd.Investee accounted for under the equity method

" 115,531,850 79,814 48.42% 79,814

" " Optical Scientific, Inx. None Financial assets carried at cost - noncurrent

19,273 82,558 11.00% -

" " Taicom Capital Ltd. " " 20,000 261,095 11.43% -" Fund NAVF II-GP " " - 1,099 5.16% -" " NAVF II-LP " " - 19,384 5.16% -" Stock Intelligent Epitaxy Technology, Inc. " " 333,334 19,680 0.34% -" " Applied Wireless Indentifications

Group, Inc." " 1,877,844 - 0.81% -

" " Firetide Inc. " " 1,333,360 32,800 1.67% -" " Black Rock-LIF " Financial assets carried at cost - current - 14,352 0.00% -

Welltop Technology Co., Ltd.

" Optical Microwave Networks Inc. Wholly-owned subsidiary Long-term equity investments accounted for under the equity method

43,800,000 927 100.00% 927

" " MTI Laboratory, Inc. " " 500,000 11,199 100.00% 11,199Jupiter Network Corp. " Jupiter Technology (Wuxi) Inc. " " - 773,746 91.00% 773,746Zeus Communications, Inc.

" Jupiter Technology (Wuxi) Inc. " " - 76,524 9.00% 76,524

Millennium Telecom Inc. " East Asia Network Taiwan None Financial assets carried at cost - noncurrent

32,000,000 320,000 40.00% 320,000

" " Transcom Inc. " " 600,000 1,017 0.89% -Jupiter Technology (Wuxi) Inc.

" Greast Communication Technology Co., Ltd.

Wholly-owned subsidiary Long-term equity investments accounted for under the equity method

7,972,000 13,455 3.34% 13,455

(Note):The market value of financial assets at fair value trough profit or loss is based on latest quoted fair prices of the accounting period. The market value of investments accounted for under the equity method is based on the net asset value of the investee company. The market value of Asia Global Crossing Taiwan is based on the option exercise price.

～61～

e. The cumulative buying, selling of one specific security over $100 million or 20% of the Company’s capital stock for the year ended December 31, 2008:

Investor Marketable

securities General

ledger account Number of

shares Amount Number of

shares Amount Number of

shares Selling price Book value Gain (Loss)on disposal

Number ofshares Amount

Gain onvaluation

Sasson International Holdings Inc.

Permal Fixed Income Holdings N.V C1

Financial assets at fair value through profit or loss - current

15,688 $ 338,357 - $ - 15,688 $ 299,860 $ 335,631 $ 35,771 - $ - $ -

Beginning balance Addition Disposal Ending balance

j. Information on derivative transactions:

Investee Financial instruments Contract amount Fair value Contract term NoteGlobal PCS Inc. Forward exchange contracts USD 2.5million $ 821 2008.10.27~2009.03.03 Note

Note: The forward exchange contracts to hedge the change of exchange rate due to accounts receivable, without adopting hedge accounting.

December 31,2008

f. Real estate acquired amounting to over $100 million or 20% of the Company’s capital stock for the year ended December 31, 2008: None.

g. Real estate disposed amounting to over $100 million or 20% of the Company’s capital stock for the year ended December 31, 2008: None.

h. Purchases and sales transactions with related parties over $100 million or 20% of the Company’s capital stock for the year ended December 31, 2008: None.

i. Receivables from related parties over $100 million or 20% of the Company’s capital stock as of December 31, 2008: None.

～62～

～63～

(3) Disclosure of information on indirect investments in Mainland China

a. Basic information, change in investment balance and profits/losses recognized from the indirect investment:

Investee in Investment Mainland China Main activities Paid-in capital method (Note)

Jupiter Technology (Wuxi) Inc.

Satellite communication, microwave communication and consulting services

US $21,000,000(in dollars)

Invest to Mainland China through set up of a new company on third area

US $11,000,000(in dollars) US$10,000,000 -$

US $21,000,000(in dollars) 100.00% 91,362$ 850,270$ -$

Greast Communication Technology Co., Ltd.

Design and manufacture of W-CDMA and Base band RF Sub-system

RMB$23,860,000(in dollars)

Invest to Mainland China through activating a company on third area

US $3,970,000(in dollars) - -

US $3,970,000(in dollars) 51.76% 2,321)( 93,269 -

Note: Profits (losses) were recognized based on the financial statements audited by the Company’s auditors.

Ceiling of investment in Mainland ChinaUS$25,008,000US$24,970,000 $3,053,072

Ending balance of investment from Taiwan as ofDecember 31, 2008 (in dollars)

Approved investment amount by Ministry of Economic Affairs R.O.C. (in dollars)

Ownershipheld by theCompany(direct andindirect)

Investmentincome(loss)

recognizedby the

Companyfor the year

Book value ofinvestments in

Mainland Chinaas of December

31, 2008

Accumulatedamount ofinvestment

incomeremitted backto Taiwan asof December

31, 2008

Accumulatedamount of

remittance toMainland China asof January 1, 2008

Amount remitted toMainland Chinaduring the year

Amount remittedback to Taiwanduring the year

Accumulatedamount of

remittance toMainland Chinaas of December

31, 2008

b.

(1) Purchases

Amount Percentage Amount Percentage

2,743,599$ 47% 2,138,742$ 38%

(2) Sales

Amount Percentage Amount Percentage

432,622$ 6% 397,954$ 6%

- - 33 - 432,622$ 6% 397,987$ 6%

(3) Accounts receivable

Amount Percentage Amount Percentage

16$ - 15$ -

(4) Other receivables

Amount Percentage Amount Percentage

99,393$ 104% 167,823$ 445%

Significant transactions with the direct and indirect investments in Mainland China (the amountrepresents the figures prior to eliminating the purchases and sales transactions between theCompany and the investee companies in China through its subsidiaries (the middlemen) inother countries.)

Jupiter Technology (Wuxi) Inc.

For the years ended December 31,2008 2007

For the years ended December 31,2008 2007

Jupiter Technology (Wuxi) Inc.Greast Communication Technology Co., Ltd.

December 31,2008 2007

Jupiter Technology (Wuxi) Inc.

December 31,2008 2007

Jupiter Technology (Wuxi) Inc.

～64～

(5) Accounts payable

Amount Percentage Amount Percentage

227,539$ 22% 208,142$ 29%

(6) Accured expenses

Amount Percentage Amount Percentage

-$ - 1,800$ -

(7) Property transaction: Please refer to Note 5.

(8) Loans to subsidiaries in other countries: None.

(10) Other significant transactions which affect current income or financial conditions: None.

Jupiter Technology (Wuxi) Inc.

(9) The endorsements and guarantees provided by the Company to Mainland China subsidiaries: Please refer to Note 11.

Jupiter Technology (Wuxi) Inc.

December 31,2008 2007

December 31,2008 2007

～65～

Percentage of consolidatedNumber Relationship General ledger total operating revenues or total assets(Note a) Company Name Counterparty (Note b) account Amount Transaction terms (Note c)

0 Microelectronics Technology, Inc.

Global PCS Inc. 1 Sales revenue 1,154,853$ Similar with general transactions

14.39%

0 " " 1 Rental revenue 4,691 " 0.06%0 " " 1 Other non-operating expense 3,177 " 0.04%0 " " 1 Accounts receivable 567,345 Net 45 days 6.36%0 " " 1 Other receivable 72,310 " 0.81%0 " " 1 Accrued expenses 338 Net 30 days 0.00%0 " " 1 Accounts payable 3,805 " 0.04%0 " " 1 Guarantee deposit received 1,054 Deposits for rental 0.01%0 " " 1 Prepayments 58 Similar with general

transactions0.00%

0 " " 1 Other non-operating income 600 " 0.01%0 " Jupiter Technology (Wuxi) Inc. 1 Sales revenue 63 " 0.00%0 " " 1 Purchases and manufacturing

expenses2,311,000 " 28.80%

0 " " 1 Accounts payable 197,870 Net 30 days 2.22%0 " " 1 Other non-operating income 1,164 Similar with general

transactions0.01%

0 "MTI Laboratory, Inc.

1 Purchases and manufacturing expenses

253,847 " 3.16%

0 " " 1 Other non-operating expense 11,214 " 0.14%0 " " 1 Accrued expenses 2,620 Net 30 days 0.03%0 " " 1 Accounts payable 5,031 " 0.06%0 " " 1 Prepayments 464 Similar with general

transactions0.01%

0 " " 1 Rental expense 8,331 " 0.10%0 " Welltop Technology Co., Ltd. 1 Sales revenue 20,844 " 0.26%0 " " 1 Accounts receivable 7,875 Net 90 days 0.09%

Transaction

～66～

(4) Significant intercompany transactions for the year ended December 31, 2008

Percentage of consolidatedNumber Relationship General ledger total operating revenues or total assets(Note a) Company Name Counterparty (Note b) account Amount Transaction terms (Note c)

1 Global PCS Inc. Microelectronics Technology, Inc.

2 Purchases and manufacturing expenses

1,154,853$ Similar with general transaction

12.95%

1 " " 2 Rental expense 4,217 " 0.05%1 " " 2 Other non-operating income 3,177 " 0.04%1 " " 2 Research and development

expenses474 " 0.01%

1 " " 2 Accounts payable 630,681 Net 45 days 7.07%1 " " 2 Accrued expenses 8,974 " 0.10%1 " " 2 Other receivables 3,860 Net 30 days 0.04%1 " " 2 Accounts receivable 283 " 0.00%1 " " 2 Refundable deposits 1,054 Deposit for rental 0.01%1 " " 2 Other payables 58 Similar with general

transaction0.00%

1 " " 2 General and administrative expense

600 " 0.01%

2 Jupiter Technology (Wuxi) Inc. Microelectronics Technology, Inc.

2 Purchases and manufacturing expenses

63 " 0.00%

2 " " 2 Sales revenue 2,311,000 " 28.80%2 " " 2 Accounts receivable 197,870 Net 30 days 2.22%2 " " 2 General and administrative

expense1,164 Similar with general

transaction0.01%

3 MTI Laboratory, Inc. Microelectronics Technology, Inc.

2 Sales revenue 265,061 " 3.30%

3 " " 2 Accounts receivable 7,651 Net 30 days 0.09%3 " " 2 Other payables 464 Net 90 days 0.01%3 " " 2 Rental income 8,331 Similar with general

transaction0.10%

4 Welltop Technology Co., Ltd. Microelectronics Technology, Inc.

2 Purchases and manufacturing expenses

20,844 " 0.26%

4 " " 2 Accounts payable 7,875 Net 30 days 0.09%5 Sasson International Holdings Inc. Millennium

Telecom Inc.3 Other lon-term receivables 168,264 Working capital 1.89%

6 Millennium Telecom Inc. Sasson International Holdings Inc.

3 Other payables 168,264 " 1.89%

Transaction

～67～

Percentage of consolidatedNumber Relationship General ledger total operating revenues or total assets(Note a) Company Name Counterparty (Note b) account Amount Transaction terms (Note c)

0 Microelectronics Technology, Inc.

Global PCS Inc. 1 Sales revenue 636,979$ Similar with general transactions

9.03%

0 " " 1 Purchases and manufacturing expenses

2,473 " 0.04%

0 " " 1 Rental income 4,386 " 0.06%0 " " 1 Other non-operating income 1,980 " 0.03%0 " " 1 Accounts receivable 43,929 Net 45 days 0.62%0 " " 1 Other receivables 5,356 " 0.08%0 " " 1 Accrued expenses 117 Net 30 days 0.00%0 " " 1 Guarantee deposit received 1,054 Deposits for rental 0.01%0 " " 1 Accounts payable 13 Net 30 days 0.00%0 " Jupiter Technology (Wuxi) Inc. Sales Revenue 568 Similar with general

transactions0.01%

0 " " 1 Purchases and manufacturing expenses

1,741,356 " 24.68%

0 " " 1 Accounts payable 159,536 Net 30 days 2.26%0 " " 1 Other non-operating income 3,566 Similar with general

transactions0.05%

0 " " 1 Other non-operating expense 430 " 0.01%0 " " 1 Temporary payments 39 " 0.00%0 " " 1 Accrued expenses 1,800 " 0.02%0 " " 1 Other receivables 367 Net 90 days 0.00%0 " Optical Microwave Network Inc. 1 Other receivables 4,888 " 0.05%0 " MTI Laboratory, Inc. 1 Purchases and manufacturing

expenses255,591 Similar with general

transactions3.62%

0 " " 1 Accrued expenses 885 Net 30 days 0.01%0 " " 1 General and administrative

expenses14,731 Similar with general

transactions0.21%

0 " " 1 Prepayments 624 Net 90 days 0.01%0 " " 1 Rental expenses 4,087 Similar with general

transactions0.06%

0 " " 1 Accounts payable 18,437 Net 30 days 0.21%0 " Greast Communication Technology

Co., Ltd.1 Sales revenue 33 Similar with general

transactions0.00%

Transaction

～68～

(5) Significant intercompany transactions for the year ended December 31, 2007

Percentage of consolidatedNumber Relationship General ledger total operating revenues or total assets(Note a) Company Name Counterparty (Note b) account Amount Transaction terms (Note c)

1 Global PCS Inc. Microelectronics Technology, Inc.

2 Purchases and manufacturing expenses

636,979$ Similar with general transaction

9.03%

1 " " 2 Sales revenue 2,473 " 0.04%1 " " 2 Rental expense 4,386 " 0.06%1 " " 2 Other receivables 117 Net 30 days 0.00%1 " " 2 Research and development

expenses1,980 Similar with general

transaction0.03%

1 " " 2 Accounts payable 43,929 Net 45 days 0.49%1 " " 2 Refundable deposits 1,054 Deposit for rental 0.01%1 " " 2 Accrued expenses 5,356 Net 45 days 0.06%1 " " 2 Accounts receivable 13 Net 30 days 0.00%2 Jupiter Technology (Wuxi) Inc. Microelectronics

Technology, Inc.2 Purchases and manufacturing

expenses568 Similar with general

transaction0.01%

2 " " 2 Sales revenue 1,741,356 " 24.68%2 " " 2 Accounts receivable 159,536 Net 30 days 1.79%2 " " 2 Other non-operating expense 3,566 Similar with general

transaction0.05%

2 " " 2 Temporary receipts 39 " 0.00%2 " " 2 Other non-operating income 430 " 0.01%2 " " 2 Accrued expenses 367 Net 90 days 0.00%2 " " 2 Other receivables 1,800 Similar with general

transaction0.02%

3 Optical Microwave Network Inc. Microelectronics Technology, Inc.

2 Accounts payable 4,888 Net 90 days 0.05%

4 MTI Laboratory, Inc. Microelectronics Technology, Inc.

2 Sales revenue 270,322 Similar with general transaction

3.83%

4 " " 2 Accounts receivable 19,322 Net 30 days 0.22%4 " " 2 Rental income 4,087 Similar with general

transaction0.06%

4 " " 2 Other payables 624 Net 90 days 0.01%5 Greast Communication Technology

Co., LtdMicroelectronics Technology, Inc.

2 Purchases and manufacturing expenses

33 Similar with general transaction

0.00%

6 Sasson International Holdings Inc. Millennium Telecom Inc. 3 Other long-term receivables 165,393 Working capital 1.86%7 Millennium Telecom Inc. Sasson International

Holdings Inc.3 Other payables 165,393 " 1.86%

Transaction

～69～

Note a: The transaction information of the Company and consolidated subsidiaries is noted in column “Number”. The number means:1. Number 0 represents the Company.2. The consolidated subsidiaries are in order from number 1.

Note b: The relationship with the transaction parties are as follows:1. The Company to the consolidated subsidiary.2. The consolidated subsidiary to the Company.3. The consolidated subsidiary to the consolidated subsidiary.

Note c: Ratio of asset/liability is divided by consolidated total assets, and ratio of profit/loss accounts is divided by consolidated sales revenues.

～70～

12. SEGMENT INFORMATION

1) Sales by class of business

Foreign Adjustmentsoperation and

Sat.-com. Telecom. department eliminations TotalSales to unaffiliated customers 4,475,744$ 3,527,687$ 21,031$ -$ 8,024,462$ Inter-segment sales 1,746,323 1,803,612 280,132 3,830,067)( - Net operating revenues 6,222,067$ 5,331,299$ 301,163$ 3,830,067)($ 8,024,462$ Operating profit 296,738$ 133,686$ 58,911$ 75,972)($ 413,363$ Investment loss 38,370)(

Interest exGeneral corporate expenses, net 41,707)(

pense, net 20,450 ome before income tax 353,736$ Net inc

Identifiable assets 2,204,840$ 3,250,206$ 28,501$ 942,247)($ 4,541,300$ -term investments 774,938

General corporate assets 3,599,003 Long

ets 8,915,241$ Total ass

Depreciation 90,812$ 143,800$ 344$ -$ 234,956$ Capital expenditures 41,028$ 266,148$ -$ -$ 307,176$

Foreign Adjustmentsoperation and

Sat.-com. Telecom. department eliminations TotalSale customIn

s to unaffiliated ers 4,061,199$ 2,981,396$ 12,098$ -$ 7,054,693$

ter-segment sales 1,776,769 1,070,498 263,776 3,111,043)( - revenues 5,837,968$ Net operating 4,051,894$ 275,874$ 3,111,043)($ 7,054,693$

profit 334,371$ Operating 173,162$ 6,011)($ 21,139$ 522,661$ nvestment loss 59,309)(

General corporate expenses, net 2,700 pense, net 43,815

I

Interest ex ome before income tax 509,867$ Net inc

entifiable assets 2,555,837$ Id 1,824,916$ 21,732$ 408,111)($ 3,994,374$ -term investments 880,805

General corporate assets 4,017,066 Long

ets 8,892,245$ Total ass

95,838$ Depreciation 109,423$ 311$ -$ 205,572$ penditures 46,558$ Capital ex 204,354$ 160$ -$ 251,072$

For the year ended December 31, 2008

For the year ended December 31, 2007

～71～

2) Sa

Sa customersInteNet operatingOperInvestment incomeGeneIntere

～72～

les by geographical origin

Asia Others Taiwan Adj & Elim. Consolidated les to unaffiliated

142,604$ 21,031$ 7,860,827$ -$ $ r-segment sales 2,373,759

8,024,462

38,370)41,707)20,450

280,132 1,176,176 3,830,067)( - revenues 2,516,363$ 301,163$ 9,037,003$ 3,830,067)($ 8,024,462$

ating (loss) profit 81,562$ 58,911$ 348,862$ 75,972)($ 413,363$ (

ral corporate expenses ( st expense, net

Net income before income tax 353,736$ Identifiable assets 1,331,219$ 28,501$ 4,123,827$ 942,247)($ 4,541,300$

-term investments 774,938 ral corporate assets 3,599,003

LongGene Total assets 8,915,241$

Asia Others Taiwan Adj & Elim. Consolidated Sales

Inter

to unaffiliated customers 88,565$ 12,098$ 6,954,030$ -$ 7,054,693$

-segment sales 2,207,214 263,776 640,053 3,111,043)( - Net operating revenues 2,295,779$ 275,874$ 7,594,083$ 3,111,043)($ 7,054,693$

ating (loss) profit 46,777$ Oper 6,011)($ 460,756$ 21,139$ 522,661$ nvestment income 59,309)(

ral corporate expenses 2,700 st expense, net 43,815

IGeneIntere Net income before income tax 509,867$ Identifiable assets 1,083,538$ 21,732$ 3,297,215$ 408,111)($ 3,994,374$

-term investments 880,805 ral corporate assets 4,017,066

LongGene Total assets 8,892,245$

For the year ended December 31, 2008

For the year ended December 31, 2007

3) Ex

America Asia Europe Other areas

～73～

port sales by geographical destination

2008 20075,469,348$ 5,603,004$ 1,533,895 358,307

775,666 988,575 4,570 16,774

7,783,479$ 6,966,660$

For the years ended December 31,

4) Sales to major customers

AmountCustomer nameA customerD customerE customer

E customer

Customer nameA customerC customerD customer

% Department1,055,853$ 13 Telecommunication1,380,758 18 Telecommunication2,570,563 33 Satellite communication

Amount % Department1,296,932$ 18 Telecommunication

725,970 10 Telecommunication790,972 11 Telecommunication

2,173,614 30 Satellite communication

For the year ended December 31, 2008

For the year ended December 31, 2007

～74～

Corporate Directory

Directors and Executive Officers Patrick Wang Chairman of the Board Chi-Chia Hsieh Vice-Chairman of the Board

Lee Ting Director of the Board Wayne Chan Director of the Board Andrew Chu Supervisor Sue-Fung Wang Supervisor Allen Yen Director of the Board , President and Chief Executive

Officer Allen Chen Vice President, GM of Radio Division Shu-Huei Fuong Vice President and Chief Financial Officer

Location Headquarter Microelectronics Technology Inc. No.1, Innovation Road II Hsinchu Science Park, Taiwan Tel: 886-3-577-3335 Fax: 886-3-577-0688 MTI lab 130, Rose Orchard Way, San Jose, CA95134, USA Tel: 1-408-954-0466 Fax: 1-408-954-0908 Overseas Manufacturing Sites Jupiter Technology (Wuxi) Co., Ltd. No.13 Minjiang Rd. Wuxi State High & New Technology Industry Development Zone, Jiangsu Province, China Tel: 86-510-8522-8800 Fax: 86-510-8522-9892