LETTER FROM THE CEO – THE INFLECTION POINT
“Visual Presence” is an emerging requirement for critical communication interactions within the real-time enterprise. To fully take advantage of this accelerating market, TANDBERG is transforming itself from a video conferencing endpoint supplier to a visual communication solution provider. In 2003, TANDBERG significantly extended the company’s solution set through the company’s own innovation as well as through strategic alliances with partners such as Cisco Systems, Inc. and WebEx Communications.

INNOVATION
TANDBERG’s networking products, such as the company’s multipoint control unit and gateway, have delivered new standards of ease of use to the company’s customers while being first to market with support for H.264 and AES encryption. These solutions have grown from zero to over 10% of TANDBERG revenues in 12 months.

TANDBERG’s market leading management solution, TANDBERG Management Suite (TMS), became a portal to web conferencing through integration with WebEx conferencing and TANDBERG’s own solution, See&Share. The company introduced an integrated solution with Microsoft’s popular Exchange Outlook product, allowing customers to schedule video events, meeting rooms, web conferences or audio calls from their familiar Outlook interface.

Over two years of partnership with Cisco Systems has resulted in the February 18th, 2004 announcement of TANDBERG’s Video Telephony solution. Video Telephony, another TANDBERG first, operates in conjunction with Cisco’s industry leading CallManager 4.0 IP Telephony system and validates the market for personal visual solutions.

In 2003 TANDBERG launched solutions optimized for key vertical markets. The company’s Director solution was introduced globally as a critical tool in distance learning applications. The company introduced a mobile visual system, the TANDBERG Tactical, based on the needs of the company’s military and emergency response clients. Finally, the TANDBERG Presenter Module, which transforms any projection system into a video communications tool, was introduced for the company’s conference room integration partners.

TANDBERG has truly positioned itself as an innovative solutions provider to the company’s partners and customers.

FINANCIAL PERFORMANCE
Spending contracted in late 2002 and into the first quarter of 2003. As a consequence, TANDBERG was one of many IT-related companies that fell short of revenue and earnings targets set at a more optimistic time. However, TANDBERG experienced significant quarter-over-quarter growth for the remainder of the year. Several key decisions preserved the revenue and earnings rebound: continued emphasis on technology leadership, the building of a truly global organization, an increased focus on service revenue, and the strengthening of the company’s management team. At year end, we were able to achieve a record revenue and EBIT for the year.

The board of directors has decided to convert from NOK to USD as TANDBERG’s functional reporting currency. The reason for the USD reporting is strategic, giving the company financial reports that most accurately measure the performance in world markets. TANDBERG’s growth plans suggest that the USD will continue as the dominant operating currency.

Revenues for 2003 were 1,577.6 MNOK or 223.3 MUSD compared with 1,830.6 or 231.9 MUSD in 2002, a 13.8% decrease measured in NOK and 3.7% decrease measured in USD. TANDBERG’s flexible business model and variable cost structure allowed the company to generate cash and profits throughout the year. EBIT margin was 20.5% for the year with 331.2 MNOK generated in cash from the operation.

MANAGEMENT TALENT
To grow globally, TANDBERG requires management depth. During 2003, we fortified the company’s senior management team, adding a number of essential skills and a great deal of experience in marketing, sales, and research and development. In January of 2003, Brad Johnston was announced as president, TANDBERG Americas. Toni Lee Rudnicki joined the executive management team as Chief Marketing Officer mid-year and Yngve Nygaard as president, EMEA, in December. During 2003 an exhaustive Chief Financial Officer search was conducted, and in early 2004 we welcomed Michael Ketcham on board. In all, we hired 27 new employees throughout the year.

Market segmentation focuses on growth. During the year, we created a dedicated theatre of operations in EMEA and the Asia/Pacific region. This allows us to focus on the rapidly growing Asian market, taking full advantage of the installed base of IP networks, specifically in China, while enhancing the company’s position in the European theatre.

RECEPTIVE MARKETS
As real-time visual communication continues to prove its value as a productivity tool, TANDBERG continues to win high-profile accounts with leading companies and public-sector departments. Among the company’s many new customers in 2003 were Harley-Davidson, National Semiconductor, Boeing, Volkswagen, and the U.S. Department of Veterans Affairs.

The company’s intention is to drive growth in parallel with the tremendous potential of IP. To some degree, we will grow by acquisition, leveraging the company’s strong cash position when the right opportunities arise.

VERTICAL GROWTH
As we work to enlarge the world market, the company’s technologies are being adopted enthusiastically in industry “verticals” where they are having the greatest impact. The company’s focus in 2004 will continue to be on verticals such as the public sector, education, healthcare, financial services and manufacturing. Using TANDBERG real-time visual solutions, decision makers in these industries are making better decisions faster, time-to-market is shrinking, people are being trained at less cost, and lives are being saved.

LOOKING AHEAD
The real-time visual communications market looks extremely promising. As technologies converge, economics improve with scale, and as businesses and governments rely more and more on the immediacy of real-time video communication, TANDBERG is well positioned to take advantage of each inflection point.

We have five major objectives for 2004:

• Leadership in every market in which TANDBERG participates, including:
   – Team and desktop office systems, group systems and systems customized
      to vertical applications
   – Network infrastructure specific to video deployment such as the TANDBERG
      MCU (Multipoint Control Unit) and the TANDBERG Gateway
   – The TANDBERG Management Suite and other management and security
      software
• Demonstrated technology leadership with a focus on TANDBERG “Firsts” such as
  presence technologies and solutions for IP Telephony/ Video Solutions.
• Fifteen percent of FY04 revenues from services by Q4, FY04
• Consistent customer satisfaction scores of 4.25 of five or higher
• Profitable revenue growth

The entire company is focused on these goals. We will succeed by creating customer and channel-partner value, building an environment to attract outstanding talent, and achieving operational excellence.

We thank the company’s employees, who have worked very hard throughout 2003, the company’s partners and customers who have shared the company’s vision, and the company’s shareholders who have supported the company’s vision of TANDBERG worldwide success.