Year Two Thousand and One has been another year of growth in both net sales and profit for the Group. It has been a year in which we strengthened our position as one of the world's leading developers and manufacturers of data networking, broadband and communication solutions in the small and medium enterprise sector.

Globally consolidated revenues for Fiscal Year (FY) 2001 grew to an all time high of US$520 million, a surge of 17 percent over the US$445 million in Fiscal Year 2000. Net income rose to $28.2 million, up from $26.6 million last year, an increase of 6 percent. Net income per share was US$0.06, compared to US$0.072 for the same period last year.

D-Link Group managed to post these spectacular growth results by successfully executing its vision and product strategies in a most challenging economic environment and undaunted competitive landscape. The events of September 11th, global economic downturn, cutback of enterprise IT spending, and continued industry consolidation created challenges that have never been experienced before.

Geographically, we continued to penetrate all major markets. In the US, D-Link wireless and home gateway products made a splash by being one of the top 4 vendors in merely a year's time. D-Link gained even more exposure and visibility in all of the top tier retail IT stores and market share was greatly enhanced as a result. In Asia, we made major progress by being the leading broadband Customer Premise Equipment (CPE) or Wide Area Network (WAN) solution provider in the Japanese market. We continued to win new business mandates from our blue-chip Japanese Original Design Manufacturing (ODM) partners. Sales to Japan grew an astonishing 57% during the year. In China, it has been another year of fruitful revenue growth, or 30% Year over Year (YoY). D-Link Local Area Network (LAN) solutions continue to beat global competitors and clinched a number two seat in the Chinese data networking market. The Group made its first step by pitching Metro Ethernet technology to help deploy cost-effective last mile solutions for the Chinese telecommunication industry.

Product wise, D-Link took advantage of the quick convergence of voice and data by providing connectivity solutions over the Ethernet platform. While the wired LAN solutions continued to be core product offerings, we also strengthened our wireless LAN (802.11a, 802.11b and bluetooth), broadband access (Asynchronous Digital Subscriber Line and Cable Modems), Voice over Internet Protocol(VoIP), and residential gateway product lines. Together these new technologies contributed 35% of FY2001's revenue and continued to prosper well into FY2002.

In order to provide top notch LAN, Wireless LAN (WLAN) and home solutions, the D-Link Group has established a significant multi-layered distribution channel in all major market territories. To extend the best level of local support and technological assistance to our customers worldwide, the Group has opened

more overseas subsidiaries, branch offices, technical support centers and warehousing facilities during the year. With a well-established global distribution network and 50 sales offices in 23 countries, D-Link products now are available in more than 100 countries. Most noteworthy, was the public listing of our Indian subsidiary in April of 2001. It not only demonstrated D-Link's commitment to that market, but also echoed the overwhelming market acceptance of the Brand.

In 2001, we continued to beef up our Research & Development teams in China and India to further expedite innovative next generation solutions for emerging technologies. China, in particular, saw the fastest growth in R&D given the potential and proprietary nature of that market. Our talented engineers in the four R&D centers worldwide continue to do an excellent job of designing and developing cutting edge communications products, allowing D-Link to deliver the most integrated, advanced and tailor-made networking solutions from wired LAN, to digital home, WLAN, and broadband.

Despite the ever-challenging global economic outlook, I believe that D-Link has positioned itself to be a strong player in the global data networking industry in the coming year. By strategically targeting emerging standards-based Internet connectivity growth market segments for business-to-business, and business-to-consumer applications, D-Link has been able to leverage its product rights whenever the need arises.

D-Link's balance sheet remained sound and intact despite the very challenging industry environment. The management team made great efforts to bring down global inventory during this tough period to the lowest level in the past three years, with the implementation of a global Enterprise Resource Planning (ERP) system. As a result, cash cycle improved to merely 82 days, the best in three years. This tremendous effort in cash flow management has enabled the Group to generate positive cash flow from operations since the second quarter of FY200I, which is a key matrix in measuring operation efficiency. The Income Statements also showed stability in FY2001. Most noteworthy, the Group managed to register a 27% consolidated gross margin, up from 26% in FY2000, due to a better product mix. Return on Equity (ROE) was stabilized at 10%, it may not be the best we opted for, but it certainly was not easy considering a very tough business environment for FY2001.

Looking forward, I firmly believe that the diverse channel structure combined with an advanced product mix, deeper penetration and a stronger foothold in major markets, precise execution of tailor-made product strategies in each geographic region, and solid financial performances, shall all provide concrete assurance for D-Link customers and investors worldwide. D-Link is well positioned to participate in all major markets through its strong global presence, and benefits from outsourcing to many major ODM partners based on the Company’s leading technological edge. Financially, given the strategic migration towards the higher end and integration sides of the networking value chain, I anticipate better profit margins at both the gross and operating levels in FY2002.

I wish to thank all of our shareholders, customers, and employees for their support in 2001 and look forward to meeting the challenges in 2002 and beyond. I remain confident in the long-term strategy for the company. D-Link is ready to embrace all of the opportunities that lie ahead as we direct our resources to the fastest growing areas, unleash the spirit and energy within each and every D-Link employee, and strive to achieve an even more competitive and successful D-Link.

Ken Kao
Chairman and CEO
D-Link Group