Business Report 2005

Creating a New Peripheral Market�

　　　for the Digital Home

MELCO Group

At the Melco Group, we have achieved growth by

expanding the range of our business from computer

peripherals to Internet devices. As technological innovation

fuels changes in consumer needs, we have made great

efforts to anticipate these changes. Our growth has been a

function of our natural ability to translate these observations

into new ideas.

"Buffalo," our main brand, has many fans among the kinds

of consumers who are the most avid and well informed

users of computers and networks. It is the critical eyes of

these well-informed consumers that have provided impetus

for our progress to date and enabled us to stay ahead of the

time in terms of inventing new ideas and developing new

technologies that turn ideas into actual products. Now, we

see another big change about to occur.

More and more audio and video content is becoming

available via the Internet, and people are becoming very

comfortable with the idea of accessing services through

networks. These ways of approaching this content are

gradually evolving into the "digital home," where people

can have unfettered access to music and video through

televisions and personal computers that are connected

through a home network. This process is creating numerous

new business opportunities for our company, as peripheral

devices will be needed to link new digital devices and

existing home electronic devices and personal computers

commingled in home networks.

We at the Melco Group are striving to reinforce our position

as the most trusted provider of the bridge between personal

computers and electronic home appliances in the eyes of not

only the consumers but also the manufacturers of personal

computers and electronic home appliances. Amid these

technological and social changes, we are using our abilities

to anticipate consumer needs and address them with

practical solutions, to expand the range of our business and

advance toward the aim of maximizing our corporate value.

Envisioning the digital home market

Record sales and profit in fiscal 2004We at the Melco Group have a clear vision of growth,

and are making continuous efforts to develop new

markets. At the same time, however, we realize it is also

important that we secure the solid base of profitability

that enable us to make the up-front investments.

In the first half of fiscal 2004, the market for personal

computers and related products was stagnant, creating a

difficult environment for all market participants. We at

Melco made great efforts to enliven the market as a

whole, achieving record levels of sales, operating

Corporate direction

Visions of Growthand Ample Resources to Capture the Digital Home Market

Makoto MakiPresident and CEO MELCO HOLDINGS INC.

Photograph provided by the Yomiuri shimbun.

Looking ahead to the development of the market for

products related to the digital home, we have launched a

new network disk recorder system called Link de Rokku.

This system can be used to command home network

components for TV Capture (recording broadcasts),

network hard disks (storage of recorded data) and media

players (playback) through a single device, enabling

consumers to easily realize their plans for a digital home.

We have also begun offering set-top boxes for customers

of the NTT East/West Flets video distribution services,

which has created a new set of business opportunities for

us, aiming at the era of the digital home. We think that the

offering of video distribution services by major

communications companies is a sure sign that the era of

the digital home is just around the corner.

In the area of wireless LAN, which is the key product in

the digital home sphere, we have launched remote-access

models and high-power models that expand the field of

applications. Our AOSS system,which makes it easy even

for beginners to set up wireless LAN securely, is

beginning to be used in products offered by major

manufacturers of home electronics, as well as in game

consoles, which may further accelerate the adoption of

home networks.

All these developments show that our group is engaged on

many levels in the opening moves of the shaping of the

market for digital home products. In this digital home

market, we will be building on the technological expertise

we have acquired as one of the leading companies in the

area of computer peripherals, to formulate new ideas and

to secure a presence in this growing market.

The strategic moves toward the digital home market

income and ordinary income for the year.

In USB flash memories, the new memory media that

have taken the place of floppy disks, our sales increased

about 40% from the year before. Our products that offer

high speed and unique design particularly have received

a warm welcome from consumers, contributing both to

the growth of the market and the increase in our market

share. Our products featuring well known Disney

characters have played a key role in interesting women

and families in the market for computer peripherals.

As the use of home networks has grown more

widespread, we have seen an increase in the number of

consumers using these networks to view video content,

and our sales of external hard drives increased more

than 25% from the year before. Our TeraStation

network hard disk products, launched in December

2004 for the corporate market, have been a big hit; with

their high reliability. These network hard disks have the

potential to greatly change the office market for storage

devices. TeraStation has received strongly favorable

reviews in computer publications in the U.S., Britain,

Germany, China and other countries, helping to

establish a foothold for the Buffalo brand in these

overseas markets.

Corporate direction

Growth inline with Social

Changes

Digital HomeProducts asthe Next Core

Business

Ubiquitous�Networks

Digital�HomeBroadbandInternet Home�

Networks

Wireless LAN Products

Business Structure

Existing PC Peripherals(Memory, Storage, etc. )Stable Source of Earnings

Digital Home Products

The digitization trend has begun in earnest in the home sector

A digital home is one in which televisions and personal

computers are connected via a home network, creating a

household environment where people can enjoy

broadcastings and recorded video in any room they

wish. Recently, many manufacturers of home

electronics and personal computers have embraced this

concept, and many members of the general public are

becoming familiar with it.

Since the start of 2005, newspapers and other media

have featured many articles dealing with the "digital

home." Some of these articles report that digital home

products have already been developed or launched, but

many of them actually target commercialization around

2006. From this we can see that the market is now

poised for a full-scale take-off in the very near future.

The digital home is starting to become the norm

The concept of components

Connecting televisions to home networksSo, what is the best way to connect a television to a home

network? The simplest solution is to purchase a network-

compatible television. In fact, most digital televisions

available today have the connectors they need to link to

home networks.

There are other ways, however. One is to use a peripheral

device called a media player, which can be used to

connect ordinary televisions to home networks. A

networked television can be used to access the Internet, or

a home computer. Family videos shot with a digital video

camera can be edited on the computer and viewed on a

big-screen TV in the living room without further ado.

The most important element of the digital home is the

home network. Since the dawn of VCRs, we have been

able to record programs we want to watch, and watch

them whenever we want, without having to be in front of

the television when the program is broadcasted. What

was achieved with this is the concept of "whenever."

Now, the digital home introduces the concept of

"wherever": to be able to watch what we want in any

room of the house, even in front of a computer.

To watch videos, three functions are required: a device

for capturing broadcastings, a device for storing it, and a

device for displaying (viewing) it. Even before now,

The Society of the Future

80

2003(Actual)

2004(Actual)

2005(Est.)

2006(Forecast)

2007(Forecast)

2008(Forecast)

2010(Forecast)

2

(Million units) (¥100 million)

4

6

8

10

2,000

3,000

4,000

5,000

6,000

Projected Growth of the Digital TV Market

400

800

650

1,050

Source: Fuji Chimera Research Institute, Inc.

5,400

2,800

2,000

SalesVolume

Volum

e

Sales

5,800 5,800

5,000

3,600

0 0

240

140

Watching onDigital TV

Watching onAnalog TV

Watching Overseas

Watching on PC

Watching On Demand TV

consumers have been able to accomplish these three

functions with a combination of ordinary televisions and

video decks. But the act of viewing has been limited to

locations (rooms) where this combination of equipment

is located, typically in the living room. In the digital

home, each of these three functions will be assigned to a

component that can be located anywhere as long as it is

linked to the home network.

By using these components, the storage and recording

devices can be located near the antenna, and the viewing

device can be in an entirely different location in any

room. The thinking behind the home network offers

many outstanding advantages in terms of both cost and

functionality. If we broaden the concept of component a

bit further, it is possible to include the viewing of content

via the Internet, from anywhere; people who are away

from home will be able to view the videos they have

stored on devices at home. There are already many

Japanese people either on business trips or living abroad

who are able to watch programs that have been recorded

and stored at their homes in Japan. We are already

witnessing the dawn of the digital home era, when

people will be able to enjoy video content both

"whenever" and "wherever" they wish.

Components for Sharing Digital Entertainment

TV Capture Box

STB

Network Attached HDD

ＣＡＴＶ

Digital TV

CS/BS

Terrestrial Digital Broadcastings

Wireless LAN

〈Only one antenna is needed〉

Internet

Capturing Storing

Access point

Network Media Player

◎Sharing a single broadcasting source with all the TVs and PCs in the house

All you need is a component for viewing in each room.

It possible to watchTV via the Internet.

The Society of the Future

Steps toward the realization of the digital homeThe basic components needed to create a digital home

are already available in the retail market, and "early

adopters" are already using them. It is believed that

interest in, and implementation of, digital home

concepts will spread rapidly as video distribution

services and terrestrial digital broadcasting take flight.

There is no need for consumers who are interested in

creating a digital home to go out and buy a whole

houseful of equipment. They can add one component

at a time to their home networks, as the early adopters

have been doing.

The first thing needed is an Internet connection, but

most people already have that for their computers. The

next element is the home network; for people just

getting started now, a "wireless LAN" is

recommended, because it can penetrate walls and

floors without rewiring. This allows people to access

the Internet from any room in the house.

Next is the television connection, for which a media

player is recommended. This will also allow content

recorded on the computer to be displayed on other

devices connected to the home network. Many

personal computers now on the market are already

equipped to record television broadcasting; for those

that are not, an after-market "TV Capture" can be

added.

If a network hard disk is added, people will be able to

enjoy the video and audio content they wish from any

room in the house. This is all one really needs to put

together a digital home. Of course, depending on the

number of televisions in the household, more network

hard disks and media players can always be added.

Putting things together piece by piece in this way

keeps the whole process easy to understand, and helps

out-of-pocket expenses down, making it easy for

people to get started.

Bridges between computers and home electronicsThe kinds of technologies we have been talking about

here-for enjoying video content, communicating via

networks, and centrally managing video content stored

on a network-is now in the process of evolving through

active research and development throughout the world.

More new technologies and methods will certainly be

popping up in the future.

In the world of personal computers, peripheral devices

have been developed to add new technologies and

functions to existing computers. And in the world of

home electronics as well, new and old devices coexist

side by side, and we expect to see the emergence of

peripheral devices that allow new functionality to be

added to existing systems.

Melco Group is one of a limited number of companies

in the world that possess technologies for networks,

storage and graphics, and we are making our own

contribution to the shaping of a rich, networked society.

The Society of the Future

Developing Global Standards

The Wireless LAN AirStation Series as Global Standard

AOSSTM-Automatic Wireless LAN Connection and Security Settings

Almost every PC shipped in the world today is equipped with a memory module called the DDR I.

JEDEC, an organization that determines standards for these modules, has adopted the circuit board

design developed for these modules by Buffalo as the global

standard. Having already developed the DDR II, a core product

used in laptop PCs, Buffalo is now working on designing a

standard for DDR III .

AOSSTM (AirStation One-Touch Secure System) is a revolutionary technology that can automatically set

up wireless LAN connections and wireless security

configurations by a single press of the button on

compatible devices,making these kind of settings

simple and easy even for beginners.

This outstanding system is potential for spreading use

of wireless security as well as rapidly increasing the

number of wireless LAN users.And not only for

PCs,this system will also make it easier to hook up

digital home appliances to the home network.

「WLI-CB-G54」 「Wi-Fi CERTIFIED」�

DDR: Double Data Rate. Refers to DRAMs that use technology to achieve a data transfer rate twice as high as a conventional SDRAM.

Memory module: When a PC or other memory device is used, a memory module, which includes DRAMs, is required. There are many types of these modules depending on

the type of DRAM used and the number and configuration of signal pins.

JEDEC: Joint Electron Device Engineering Council. A global industrial association that promotes the standardization of electronic components.

WiFi : Certifies interoperability of wireless LAN products as certified by Wi-Fi Alliance, an organization that sets Wireless LAN standards.

Automatic Settings

Connection&

SecurityPress the AOSS button

on AirStation.Press the AOSS button

on digital home electronics.

Buffalo’s WLI-CB-G54 wireless LAN AirStation is the first product in

Japan to receive Wi-Fi certification for IEEE802.11g, a high-speed

Wireless LAN standard. This product has also been chosen as the official

testing device for wireless interoperability.

R

R

Our Expertise in Foreseeing User Needs and Capacity for Technological Development

Research & Development

Research & Development

DDRⅡ-the Next Generation PC Memory Module

Wireless Products for Creating Home Networks

As the leading company in the wireless LAN market, we are expanding our product line-ups for home networks. We were one of

the first manufacturers to market the MIMO wireless LAN products, that gains wider range of connectivity and higher

communication speeds. We have also introduced the Airstation high power wireless broadband router, which incorporates a remote

access function that allows you to access a home computer from an outside destination, and also boosts the connectivity range.

Also we have marketed models with wireless LAN functions in the "LinkStation" network-attached HDD series and the

"LinkTheater" network media player series,expanding the range of solutions for the digital home era.

These products embed AOSSTM

,making wireless LAN connections and security set-ups an easy task.

Lead-Free Memory Modules

MIMO Wireless �Broadband Router

Wireless Broadband Router

Set-Top Box (STB)

Wireless Network-Attached HDD Network Media Player

Supplying Set-Top Boxes to�NTT EAST/WEST

Buffalo is working in cooperation with On Demand TV,

Inc. and together we have developed and are starting to

supply an On Demand TV dedicated receiver set-top

box (STB) to users of NTT EAST/WEST internet

services. We have started a new business model,

utilizing a major communications carrier and aimed at

the popularization of "digital home" technology.

Environmental Activities

Companies worldwide are stepping up their activities to protect the global

environment. In January 2001, Buffalo earned ISO 14001 certification, a

global standard for environmental management systems. At the same time,

Buffalo began selling PC peripherals that conform to the standards of Japan’s

Green Purchasing Law. In June 2004, Buffalo started selling in Europe 47

lead-free memory modules that conform to the EU RoHS Regulations, which

include restrictions on the use of lead. In this manner, Buffalo is exercising care

to incorporate environmental considerations in the development and

manufacture of its products and the provision of services.

Topics

The AOSSTM Adoption by Home Appliance Manufacturers

Gaining Popularity among Overseas Press

The Buffalo AirStation wireless routers and other products have gained a strong popularity overseas,as well as in Japan. Outside Japan,

where Buffalo has concentrated on developing sales channels, a recent review of sales channels and bolstering of the product lineup in the

United States have begun to yield benefits. Especially the recently launched storage products are off to a strong start.

2005/4/12 U.S.A.　　　　　　�Medium: PC Magazine�Category: Storage Central�Prize: Editor's Choice�Network-Attacheed HDD TeraStation�HD-H1.0TGL/R5

2005/3/28 U.K.��Medium: Trusted Reviews�Prize: Editor's Choice�Network-Attacheed HDD TeraStation�HD-H1.0TGL/R5

2005/3/5 Spain�Medium: PC Plus�Prize: Premio Calidad / Precio�IEEE802.11g wireless LAN AirStation�Broadband router�WBR2-G54S

2005/3 Germany�Medium: PC go!�Prize: Very good�IEEE802.11g wireless LAN AirStation�Broadband router Remote access model�WZR-RS-G54

2005/3/16 U.K.�Medium: Bios Magazine�Prize: Technical Innovation�Network media player�LinkTheater Model incorporating wireless LAN�PC-P3LWG/DVD

2005/3/1 U.K.�Medium: Bios Magazine�Prize: Editor's Choice�Network-Attacheed HDD�LinkStation (high end model)�HD-H120LAN

2005/3 Germany�Medium: Professionell�Prize: Editor's Choice�IEEE802.11g wireless LAN AirStation�Broadband router Remote access model�WZR-RS-G54/WLI-CB-G54S

2005/2/1 U.S.A.�Medium: CNET�Award: Review�Prize: Editor's Choice�Network-Attacheed HDD�LinkStation (high end model)�HD-H250LAN

2005/2 U.K.�Medium: PC Pro�Prize: Recommended�Network-Attacheed HDD�LinkStation (high end model)�HD-H120LAN��

2005/2 Germany�Medium: PG go!�Prize: Very good�Network-Attacheed HDD�LinkStation (high end model)�HD-H120LAN

2005/1/1 U.S.A.�Medium: 2005 International CES�Award: 2005 CES Innovations�Category: Home Data Networking�Prize: Innovations 2005 Design and �

Engineering Showcase Award�Wireless LAN AirStation Remote access model�WZR-RS-G54

2005/1/17 China�Medium: China Computer World�Prize: Product of the year award�IEEE802.11g wireless LAN AirStation�Key-type adaptor for USB 2.0�WLI-U2-KG54

2005/1/15 U.K.�Medium: Trusted Reviews�Prize: Recommended�IEEE802.11g wireless LAN AirStation�Key-type adaptor for USB 2.0�Auto-install model�WLI-U2-KG54-AI��

2005/1 U.K.�Medium: PC Pro�Prize: Recommended�IEEE802.11g wireless LAN AirStation�Broadband router�WBR2-G54S

2004/8/1 Singapore �Medium: Hardware Magazine�Award: Lab-Tested!�Prize: Silver Award�Network-Attacheed HDD�LinkStation (high end model)�HD-H120LAN

2004/5/25 South Korea�Medium: Hankuk Ilbo newspaper�Prize: Best Product 2004�IEEE802.11g wireless LAN AirStation�Broadband router�WBR-G54

2005/1/6 U.S.A.�Medium: CNET�Award: CES 2005�Prize: Next Big Thing CES 2005�Network-Attacheed HDD TeraStation�HD-H1.0TGL/R5��

2005/1/3 U.S.A.�Medium: PC Magazine�Award: Product Guides�Category: Wireless Networking�Prize: Editor's Choice�IEEE802.11g wireless LAN AirStation�Key-type adaptor for USB 2.0 Auto-install model�WLI-U2-KG54-AI

■ SHARP Network Media Players　■ EPSON Wireless Printer Adaptors　■ SANYO "HOVICA" (Home Monitoring Cameras)�

■ SONY PSP Network games （"WIPEOUT PURE" car racing game, "Derby time" horseracing game）�

There are many other award-winning products.�Please refer to the company website.

トピックス�

Topics

Buffalo’s AOSSTM is being adopted in the products of more and more major manufacturers of home appliances.

Wireless LAN connections are neccessary to play network games on Sony’s set PSP (Play Station Portable),

portable game dence which was launched in April 2005, and SONY has adopted AOSSTM for easy network

connection for beginners.

With its superb usability, AOSSTM is an epoch-making technology, being able to perform complex wireless

LAN connection and security configuration easily even for beginners. Now as a leader of the digital home

peripherals market,we will promote AOSSTM to not only computer peripherals but also digital home products,for the development of a more convenient and safe network society.

Business Domains Characterized by Rapid ChangeThe core businesses of Melco Group involve PCs and the

internet, Which are well know for their rapid changes of

invironment. Now, our group is enwidening our range of

business to the digital home market.

Technological progress is rapid in this market, with new key

technologies being developed worldwide. We strive to adopt

these technologies and combine them with our own technology

and know-how to develop products to fulfill user demands.

Accomplishing this demands more than research of leading-

edge technologies or alliance with suppliers around the world,

but also requires the ability to foresee user needs. We do not

just adopt new technologies, we strive to foresee changes in

user needs to stimulate new demands for the future.

The user base for Melco Group products is expanding to

include the PC, Internet and digital home electronics domains,

at the same time becoming more diverse. To serve these new

user segments, the group must alter its product lineup and how

it extends customer support, use new sales channels, and adopt

other approaches that differ from those of the past. More brands

and new companies are needed to accomplish this.

Melco Group adopted a holding company structure on October

1, 2003. With this organization, the group is determined to

advance to a new stage of growth, one backed by developing

new markets, like those associated with the digital home,

spinning off businesses as separate companies, establishing

new companies, and forming alliances with companies in other

industries.

The long-term objective of switching to the pure holding

company structure is to establish a management framework

capable of responding even faster to major changes in markets.

Through this speed, the group is aiming to operate in a manner

that maximizes its corporate value by sustaining growth in sales

and earnings.

This signals a shift from being a company that simply aims to

grow fast into an organization with a management framework

able to support long-term growth driven by many elements. The

goal is a management system that is similar to a forest. Each tree

stands alone. But together, they create a forest. And if one tree

dies, others will grow to take its place and preserve the forest. In

this same way, we want to be a collection of small units that

together have great strength along with flexibility. This is the

"forest management" style that Melco Group aims for.

Melco Group will preserve a prominent stature in the

marketplace. The objective is raise the value of the group for

the benefit of stakeholders over a time period measured in

centuries.

Changing the Company Structure to Respond to these Changes

A Forest-like Approach to Management

BUFFALO

CFDUSA

UK

Ireland

Taiwan

OriebleNet

Ｍ.Ｏ.Ｅ.

M.P.S.

M.A.M.

MELCO HOLDINGS

A Constantly Evolving Corporate Group

The "Forest" Management

People, capital and knowledge that underpins the entire group

The "Forest" Management Responding to Shifts in the External Environment with Agility, Constantly Planting Seeds for the Success in the Future

Buf.Lease

M.T.S.

Buf.Logistics

Overseas cu

stom

ersC

usto

mers in

Japan

Products

Overseas

Manufacturing and sales BUFFALO TECHNOLOGY (TAIWAN) INC.

Taiwan

Sales and manufacturing BUFFALO TECHNOLOGY（USA）,INC.

U.S.A.

Manufacturing BUFFALO TECHNOLOGY IRELAND LIMITED

U.K.

Ireland

Material

Products

Material

Products

Material

Products

Products

Products

Products

Products

BU

FF

AL

O IN

C. *1*5

Japan

Products

Other business activities

MELCO ONLINE ENTERTAINMENT CORP.

Internet game spot administration

BUFFALO LOGISTICS INC. *2

Logistics

BUFFALO LEASE INC. *2

Rental of broadband equipment

MELCO PERSONNEL SUPPORT INC. *3

Temporary staff service

MELCO HOLDINGS INC. (Holding company) *1

Structure of Melco GroupThe Melco Group is comprised of MELCO HOLDINGS INC. and 13 consolidated subsidiaries.The Group’s main interests are the development, production and sales of computer peripherals; Internet-related services; and other incidental business.

Sales BUFFALO TECHNOLOGY UK LIMITED

ProductsSales CFD SALES INC.

MELCO ASSET MANAGEMENT LIMITED *4

Funds management advice

ORIEBLENET CORP. *2

Sales

MELCO TECHNO-SERVICE INC.*6

IT support and services

Forest-like Management

*1 MELCO HOLDINGS INC. and BUFFALO INC. (the former MELCO INC.) conducted an exchange of shares on October 2003 that resulted in BUFFALO becoming a wholly owned subsidiary, thus creating a holding company structure.

*2 On June 9, 2004, BUFFALO INC. subsidiaries BUFFALO LOGISTICS INC., BUFFALO LEASE INC. and ORIEBLENET CORP. became directly owned subsidiaries of MELCO HOLDINGS INC.

*3 MELCO PERSONNEL SUPPORT INC. was established on June 24, 2004. *4 MELCO ASSET MANAGEMENT LIMITED was established on August 9, 2004.*5 MELCO FINANCE INC. was merged with BUFFALO INC. on August 24, 2004.*6 MELCO TECHNO-SERVICE INC. was established on December 1, 2004.

Digital Home Products

We are currently developing peripheral devices for the digital home market, which will act as a bridge between computers and televisions. TV capture devices,that capture TV broadcastings to be played on PCs, and media players that can be used to play movies or music stored in the PC on TV sets are part of these devices,that are categorized here as "Other Products". As the digital home market expands, we expect markets for wireless LAN and network-attached HDDs to expand accordingly.

TV Capture Device Network Media Player

"Memory" refers to devices for recording data carrying out writing and calculating information. The larger the memory capacity, the larger the available space, and the more efficiently and rapidly processing can be carried out. USB flash memories are memories that make it easy to carry data around. Smart Media and Compact Flash memory cards, which are used as the "film" for digital cameras, are both a type of flash memory products.

MemorySales｜¥37.701 billion

Networking PCs by using LAN adapters, switching hubs and routers can improve convenience for the user. A single hard disk drive can be accessed from any other computer by networking. Using Wireless LAN, you can eliminate tangled cables and create a wireless network, and access the Internet wherever you may be in the house.

Network/BroadbandSales｜¥19.967 billion

"Other Products" is composed of multimedia products and PC related services. By adding a TV capture to your computer, you can watch and record television programs on your computer. Liquid crystal displays are becoming the most popular type of computer monitor, due to the space-saving and energy-saving capabilities and their flat screen. The service business consists of the BUFFALO SERVICE ALLIANCE, which provides Internet set-up services.

Other ProductsSales｜¥11.312 billion

Internet Setup/Installation �On-Call Service�（BUFFALO SERVICE ALLIANCE）

"Storage" refers to a device for storing data. A hard disk is a device to store software, data and images. Some hard disks are built into the computer, others are external hard disks, which may be connected to and placed alongside the computer. Network-attached HDDs are used as sharing hard disks by PCs in a network. DVDs are disks that are capable of storing a large volume of data; they have recently come into general use as the medium for movies. There are a variety of other storage devices including CD-RW drives and MO drives.

StorageSales｜¥37.372 billion

Liquid Crystal Display

Memory

35.5％�

Other Products

10.6％�

Network

18.8％�

Broadband　　　（Within network business）

15.3％�

35.1％�Storage

35.5％�

35.1％�

18.8％�Broadband�

（Within network business）�15.3％�

10.6％�

Memory Module USB Flash Memory Card Reader/WriterFlash Memory

Portable HDDDVD Drive

Hard Disk Drive TeraStation�Network-Attached HDD

Wireless LAN Card Switching Hub

TV Capture Device

Wireless�Broadband Router

Business Categories

Summary of business

Product MixFY March 2005(consolidated)

Other Products

4,081

5,409 5,519

832

5,000

6,000

4,000

3,000

2,000

1,000

0

2002

6,000

1,868

3,055

2,459

869

2,500

3,000

2,000

1,500

1,000

500

0

Consolidated ordinary income and % of sales Consolidated net income and % of sales

26,430 26,83529,0023,000

2,000

1,500

2,500

1,000

500

0

25

20

15

15

10

5

0

12

10

6

8

4

2

0

12

10

6

8

4

2

0

Consolidated shareholder's equity and return on equity

�

（million yen）� (%) （million yen）� (%) （million yen）� (%)

1.24.7

5.2 5.2 5.11.2

2.12.9 2.3

3,200

2.7

3.3

7.0

10.9

31,618

8.1

Fiscal years ended March 31�Consolidated sales

Others

Network

Storage

Memory

Others NetworkStorage Memory

87,482

8,35522,887

Broadband�（17,957）�

31,228

25,010

8,596

103,703

23,166

37,977

33,963

Broadband�（18,838）�

106,353

11,31219,967

37,372

37,701

Broadband�（16,294）�

117,000

12,50020,500

40,000

44,000

Broadband�（17,500）�

（million yen）�

2002 2003

100,000

80,000

60,000

40,000

20,000

0

Note:"Broadband" is categolized as a part of "Network"� *Consolidated figures for BUFFALO INC. （formerly MELCO INC.） for the fiscal year ended March 31 2003 and earlier are provided for comparison.

�

69,9675,12522,051

24,118

18,671

Broadband�（14,808）�

2004 2005 2006（Projected）�

2003 2004 2005 2006（Projected）� 2002 20022003 2004 2005 2006（Projected）� 2003 2004 2005

�■ Memory ProductsThe aggressive relase of new products and promotional efforts of USB flash memories have resulted the increase of salses figures by contributing to the growth of the market and the expansion of the market share simultaneously. Also, a steady increase of salesvolume of a mainstream memory modules has contributed to the consolidated sales increase 11% ona preceding fiscal year at 37,701 billion yen.

■ Storage ProductsStorage prodcuts have maintained a high market share under the growing demands for video data storage and have succeeded in capturing a new user needs of a network-attached storages. However, the decline of unit price of DVD and the shrink of market size of MO have generated the sales down 1.6% on a preceding fiscal year at 37,372 billion yen.

■ Network / Broadband ProductsBroadband products have been able to maintain a leading position in the market by expanding the applications according to the release of new products with a sophistcated features and a high added value. However, the decline of sales volume of the first half and the shrink of market size of network procts other than broadband products have resulted the sales down 13.8% on a preceding fiscal year at 19,967 billion yen.

Summary of consolidated sales for the fiscal year ended March 31, 2005

Fiscal years ended March 31 Fiscal years ended March 31 Fiscal years ended March 31

Financial data

Consolidated balance sheet

EndedMar. 31, 2005

EndedMar. 31, 2004

（million yen）�

ItemFiscal year

（Assets）�

Current assets

Tangible fixed assets

Intangible fixed assets

Investments, etc.

Total Fixed assets

Total assets

（Liabilities）

Current liabilities

Long-term liabilities

Total liabilities

（Minority interest in consolidated subsidiaries）

（Capital）

Capital

Capital surplus

Profit surplus

Balance of other profits on securities

Exchange adjustment

Treasury stock

Total capital

Total liabilities and capital

�

Consolidated statement of income （million yen）�

Sales

Cost of sales

Selling, general and administrative expenses

Operating income

Non-operating income

Non-operating expenses

Ordinary income

Extraordinary income

Extraordinary loss

Current term net income before taxes and other adjustments

Corporation, resident and enterprise taxes

Adjustment for corporation tax, etc.

Profit or loss in minority interest

Current term net income

106,353�91,563�9,266�5,523�247�251�5,519�77�781�4,815�2,384�▲31�2�

2,459

103,703�89,886�8,589�5,228�367�186�5,409�－�

1,262�4,147�1,254�▲161�▲1�3,055

�

Consolidated statement of surplus （million yen）�

Capital surplus opening balance

Increase in capital surplus/Stock-for-stock exchange

Decrease in capital surplus/Retirement of treasury stock

Capital surplus closing balance

Profit surplus opening balance

Increase in profit surplus/Net profit from current fiscal year

Decrease in profit surplus/Dividend and other payments

Profit surplus closing balance

7,593�5,333�1,249�11,677�14,260�3,055�466�

16,849

11,677�－�0�

11,677�16,849�2,459�474�

18,834

�

Consolidated cash flow statement （million yen）�

�

Operating activity cash flow

Investment activity cash flow

Financial activity cash flow

Balance of cash/cash-equivalent conversions

Increase of cash/cash-equivalents

Cash/cash-equivalent opening balance

Cash/cash-equivalent at newly established consolidated subsidiary

Cash/cash-equivalent closing balance

*On October 1, 2003, MELCO HOLDINGS INC. and BUFFALO INC. switched to a holding company system through a stock swap, with BUFFALO INC. as a complete subsidiary.�*Consolidated earnings for the fiscal year ended March 31, 2004 have been calculated by adding the non-consolidated earnings of MELCO HOLDINGS INC. during the period between the stock-for-stock exchange on October 1st, 2003 and March 31, 2004, to the consolidated earnings of BUFFALO INC. during the period April 1st, 2003 to March 31st, 2004. �

*Consolidated figures for BUFFALO INC. (formerly MELCO INC.) have been used for the 2003 half year comparative figures.

�46,826�1,640�76�

6,690�8,407�55,233�

�22,684�928�

23,613�2��

1,000�11,677�18,834�364�

▲255�▲2�

31,618�55,233

�37,390�2,015�92�

9,645�11,753�49,143�

�19,330�808�

20,139�1��

1,000�11,677�16,849�▲236�▲287�▲0�

29,002�49,143 6,564�

2,898�▲422�

2�9,042�9,035�4�

18,082

3,586�260�

▲512�▲53�3,280�5,746�8�

9,035

Item

Fiscal year

Apr. 1 2004 toMar. 31, 2005

Apr. 1 2003 toMar. 31, 2004

Apr. 1 2004 toMar. 31, 2005

Apr. 1 2003 toMar. 31, 2004

Apr. 1 2004 toMar. 31, 2005

Apr. 1 2003 toMar. 31, 2004

Item

Fiscal year

Item

Fiscal year

Financial d

ata

■ MELCO HOLDINGS INC.

Capital�

Banks�

Business establishment

Company Profile

The Melco Group is comprised of the holding company MELCO HOLDINGS INC. and 13 consolidated subsidiaries.

■ BUFFALO INC.

Company Profile

〈As of March 31, 2005〉�

As of May 13, 2005

As of June 29, 2005

〈As of March 31, 2005〉�

Board of Directors

Board of DirectorsCompany Profile

President and CEO�Senior Managing Director�Managing Director�Director�Director�Director�Senior Corporate Auditor�Corporate Auditor�Corporate Auditor�Corporate Auditor

Makoto Maki�Kuniaki Saiki�Hiromichi Maki�Hidetoshi Yamaguchi�Hiromi Maki�Iwao Tsusaka�Kiyoshi Kobayashi�Toshio Nishikawa�Yuzuru Kawashima�Tomotsune Sumi

Chairman and CEO�President and COO�Managing Director�Director�Director�Director�Director�Senior Corporate Auditor�Corporate Auditor�Corporate Auditor�Corporate Auditor

Makoto Maki�Kuniaki Saiki�Hidetoshi Yamaguchi�Seishi Toyooka�Takayuki Nishioka�Tamio Matsuo�Masanao Tuduki�Kiyoshi Kobayashi�Iwao Tsusaka�Takashi Koide�Tomotsune Sumi

TEL. 81-52-251-6891　FAX. 81-52-241-7979Headquarters Kamiya Bldg., 11-50, Ohsu 4-chome, Naka-ku, Nagoya, 460-0011, Japan

Company Name�

Incorporated�

President and CEO�

Sales�

Business �

content�

No. of employees�

Banks

Company Name�

Founded�

Incorporated�

Chairman and CEO�

Sales�

Business �

content�

No. of employees�

U R L

Group affiliates�

U R L

Capital

MELCO HOLDINGS INC．�

July 1, 1986�

Makoto Maki�

Consolidated ¥106.353 billion (Actual results for fiscal year ended March 31, 2005) �

Pure holding company of MELCO Group Holds the shares of subsidiaries involved in various businesses, �supports business operations, and carries out integrated administration through directing management.�

24 MELCO Group related: 679�

UFJ, Nagoya

Total of 13 companies (8 domestic, 5 overseas)�

http://melco-hd.jp/

￥1 billion

UFJ, Nagoya, Iyo, Tokyo-Mitsubishi, UFJ Trust Bank�

�

￥6.4 billion�

�

BUFFALO INC.�

May 1, 1975�

August 5, 1978�

Makoto Maki�

¥101.280 billion (results of fiscal year ended March 31, 2005) �

Development, manufacture and sales of computer and broadband equipment, �and supply of related services�

353�

http://buffalo.jp/

Headquarters�Tokyo Branch Office�Headquarters(branch office)�Nagoya Branch Office�Osaka Branch Office�Sendai Sales Office�Fukuoka Sales Office�Sapporo Sales Office

15, Shibata hondori 4-chome, Minami-ku, Nagoya, 457-8520, Japan�Eitaro Bldg., 2-5, Nihonbashi 1-chome, Chuo-ku, Tokyo, 103-0027, Japan�Kamiya Bldg., 11-50, Ohsu 4-chome, Naka-ku, Nagoya, 460-0011, Japan�Kamiya Bldg., 11-50, Ohsu 4-chome, Naka-ku, Nagoya, 460-0011, Japan�Sumitomo Seimei Tanimachi Bldg., 1-18 Tanimachi 9-chome, Chuo-ku, Osaka, 542-0012, Japan�Miyagino center Bldg., 5-22, Tsutsujigaoka 4-chome, Miyagino-ku, Sendai, 983-0852, Japan�Abandant 95, 12-1, Hakataeki Higashi 3-chome, Hakata-ku, Fukuoka, 812-0013, Japan�San Keisei Bldg., 4-1, Kitaichijyo Higashi 1-chome, Chuo-ku Sapporo, 060-0031, Japan

TEL. 81-52-619-1811　 FAX. 81-52-619-1800�TEL. 81-3-3242-7777　 FAX. 81-3-5203-8551�TEL. 81-52-251-6891　 FAX. 81-52-241-7979�TEL. 81-52-249-6600　 FAX. 81-52-249-6601�TEL. 81-6-6191-1511　 FAX. 81-6-6191-1510�TEL. 81-22-291-0311　 FAX. 81-22-298-9470�TEL. 81-92-477-3711　 FAX. 81-92-477-3755�TEL. 81-11-200-8150　 FAX. 81-11-200-8151

Business establishment

BUFFALO TECHNOLOGY (TAIWAN) INC.TWN �

$100million 100%Production and sales of Internet devices and �computer peripherals

CompanyRatio of�

shareholdings

Company Capital Business content

　CFD SALES INC. ¥98 million 100% Sales of Internet devices and computer peripherals

　BUFFALO LOGISTICS INC. ¥70 million 100% Packaging and shipment of products

　BUFFALO LEASE INC. ¥98 million 100% Lease and rental of Internet-related products

　ORIEBLENET CORP. ¥11 million 88.2% Sales of Internet devices and computer peripherals

¥10 million 100% Operation of Internet game center　MELCO ONLINE ENTERTAINMENT CORP.

BUFFALO TECHNOLOGY (USA), INC. US $3 100% Production and sales of Internet devices and computer peripherals

BUFFALO TECHNOLOGY UK LIMITED US $5,728,000 100% Sales of Internet devices and computer peripherals

BUFFALO TECHNOLOGY IRELAND LIMITED 　790,000 100% Production of Internet devices and computer �peripherals

Asia

15, Shibata hondori 4-chome, Minami-ku, Nagoya, 457-8520, Japan　TEL.81-52-619-1311 FAX.81-52-619-7785

Chukyo Warehouse No. 33, 1-3, Mutsuno 2-chome, Atsuta-ku, Nagoya, 456-0023, Japan　TEL.81-52-883-3035 FAX.81-52-883-3042

Eitaro Bldg., 2-5, Nihonbashi 1-chome, Chuo-ku, Tokyo, 103-0027, Japan　TEL.81-3-5203-8199 FAX.81-3-5203-8551

4030 West Braker Lane, Suite 120, Austin, TEXAS 78759-5319 U.S.A.　TEL.1-512-794-8533　FAX.1-512-794-8520　�

4F, NO.18, LANE609, SEC.5, CHUNG HSIN RD., SANCHUNG CITY, TAIPEI HSIEN, TAIWAN　TEL.886-2-2999-9860　FAX.886-2-2999-2264　�

Fukuei Akihabara Bldg., 14-3, Sotokanda 3-chome, Chiyoda-ku, Tokyo, 101-0021, Japan　TEL.81-3-3252-4141 FAX.81-3-3252-4141

Kamiya Bldg., 11-50, Ohsu 4-chome, Naka-ku, Nagoya, 460-0011, Japan　TEL.81-52-251-6823 FAX.81-52-241-7979

15, Shibata hondori 4-chome, Minami- ku, Nagoya, 457- 8520, Japan　TEL.81-52-619-7756 FAX.81-52-619-7737

East Park, Shannon Free Zone, Shannon, Co.Clare, Ireland　TEL.353-61-708090　FAX.353-61-360140

176 Buckingham Avenue, Slough, Berkshire SL1 4RD, United Kingdom　TEL.44-1753-555-000　FAX.44-1753-535-420

Chukyo Warehouse, 1-3, Mutsuno 2-chome, Atsuta-ku, Nagoya, 456-0023, Japan　TEL.81-52-882-3302 FAX.81-52-882-3302���

Europe

U.S.A.

Japan

¥10 million　MELCO PERSONNEL SUPPORT INC.

MELCO ASSET MANAGEMENT LIMITED 100,000 100% Funds management advice

East Park, Shannon Free Zone, Shannon, Co. Clare, Ireland　TEL.353-61-708032　FAX.353-61-360140

Capital

Ratio of�shareholdings

100% Agency for temporary staff

　MELCO TECHNO-SERVICE INC. Internet-related support and services

Company P

rofile

¥10 million 100%

Business content

Company P

rofile

　　Evolution of the Melco GroupBusiness/OthersHistory

Aug���

Jul��

Sep�Oct�Oct�Jan��

Jun������

Jan�Aug���

Sep�Oct�Oct�Jan��

Dec����

Aug�Oct���

Jan�Mar�May��

Mar�May�Oct�Oct�Oct�Oct�Mar����

Jun���

Jun�Aug��

Dec

Aug�Jul�Nov��

Oct����

Jul�Aug��

May��

Oct�Feb��

Sep��

Nov��

Oct���������

Jan�Nov�Apr�Oct�Jan�Jan�Jul�Dec�Mar�Dec�����

Jan�Feb�Apr��

Jul�Sep

Began marketing a string-driven turntable�Entered the personal computer peripherals market in earnest�Began marketing an internal printer buffer��Began marketing Japan's first EMS board����Began marketing CPU accelerator products�Began marketing LAN products��Began marketing window accelerators; �entered the multimedia market in earnest�Received top prize in PCB Technology Leadership Awards�Began marketing hard disks; shifted emphasis to manufacture of computer peripheral devices�MELCO INC. obtained ISO9001 certification, �the international quality assurance standard�Began marketing DOS/V component PCs; �shifted emphasis to manufacture of PC components�Began marketing LCD monitors���������Entered the wireless LAN market; released "AIRCONNECT"�Began marketing memory for Rambus devices�Began marketing the wireless LAN "AirStation"�Developed worldwide standard specification of DDR memory for notebook computers�Began Internet service business�MELCO INC. obtained ISO14001 certification, the environmental management system standard�Proposed FREESPOT to promote Internet wireless spot service�Released LinkStation, a Network Storage Center�Began broadband equipment rental business�Formed "BSA Ladies Set-up Service"�����Established new Digital Home Solutions Business Div.�Launched the Network Media Player "LinkTheater"�Cumulative sales of the Wireless LAN "AirStation" exceed 5 million units�Entered the computer supplier market�Wireless spot service "FREESPOT" exceeds 2,000 registered locations

Incorporated for the purpose of manufacturing and selling audio equipment���

Established BUFFALO （now MELCO HOLDINGS INC.）��

Made packaging/distribution business independent by establishing BUFFALO LOGISTICS INC.�MELCO INC. （now BUFFALO INC.）registered with JASDAQ�

MELCO INC. established MELCO INTERNATIONAL INC. （now BUFFALO LEASE INC.)�MELCO INC. opened High-Tech Center （now BUFFALO INC. headquaters）as�

TECHNICAL R&D center�Made Taiwan office a local corporation by establishing BAPILU PRODUCTS INC. （now BUFFALO TECHNOLOGY （TAIWAN）INC.)�

�����

MELCO INC. listed in second section of Nagoya Stock Exchange�MELCO INC. listed in second section of Tokyo Stock Exchange�

��

MELCO INC. listed in first section of Tokyo Stock Exchange & Nagoya Stock Exchange�MELCO INC. made CFD SALES INC. a subsidiary�MELCO INC. introduced divisional organization�

MELCO INC. made TechWorks （Delaware), Inc. �（now BUFFALO TECHNOLOGY （USA),INC.）a subsidiary�

MELCO INC. made TechWorks （UK), Limited. �（now BUFFALO TECHNOLOGY UK LIMITED.）a subsidiary�

MELCO INC. made TechWorks （Ireland), Limited.� （now BUFFALO TECHNOLOGY IRELAND LIMITED.）a subsidiary�MELCO FINANCE INC. began investment management of securities�

BUFFALO INC. reorganized into holding company���

MELCO INC. launched BUFFALO Service Alliance service system�Established joint venture Digital Reuse Inc. for reuse business�

Established OriebleNet Corp. sales company��

BUFFALO LEASE INC. began renting broadband devices�BUFFALO INC. changed trade name to MELCO HOLDINGS INC., moved head office�MELCO INC. changed company name to BUFFALO INC., moved head office�MELCO HOLDINGS INC. and BUFFALO INC. swapped stock and shifted to holding company system�MELCO HOLDINGS INC. listed in first section of Tokyo Stock Exchange & Nagoya Stock Exchange�

Established Melco Online Entertainment Corp.�The following five companies ceased to be subsidiaries of BUFFALO INC., and became directly-financed subsidiaries of MELCO HOLDINGS INC.: CFD SALES INC., BUFFALO TECHNOLOGY（TAIWAN）INC., BUFFALO TECHNOLOGY （USA）, INC., BUFFALO TECHNOLOGY UK LIMITED,

and BUFFALO TECHNOLOGY IRELAND LIMITED.�The following three companies ceased to be subsidiaries of BUFFALO INC., and became directly-

financed subsidiaries of MELCO HOLDINGS INC.: BUFFALO LOGISTICS, INC., BUFFALO LEASE, INC., and OriebleNet Corp. sales company�

Established MELCO PERSONNEL SUPPORT INC. as an agency for temporary staf�Established MELCO ASSET MANAGEMENT LIMITED to provide advice on funds management�

Merged MELCO FINANCE INC. with BUFFALO INC.�Established Melco Techno-Service Inc.

Origin of Company NameMelco Group shifted to a holding company system on October 1, 2003 with MELCO HOLDINGS INC. as the pure holding company. At the same time, MELCO INC. changed its name to BUFFALO INC. unifying the company and brand names. The long-established and well-known Buffalo brand name is now also the company name.

ＭＥＬＣＯ�

The company was named MELCO in 1975. "M" is for Maki, the family name of the company founder and president, Makoto Maki, "E" is for engineering, "L" is for laboratory, and "CO" is for company.

Many years ago, users had to wait until printing was complete before they could continue using their computer. Then came the printer buffer, a revolutionary product that stored printing data in its memory, instantly releasing the computer which could be used even during printing. Melco's built-in printer buffer released in 1982 represented a significant

step forward for the computer industry. It also met a market need and was a huge hit. When the new product was released Melco advertised publicly for a brand name, eventually adopting "BUFFALO". The name had a pleasant ring to it, sounding similar to "buffer" and also conjuring up an image of a strong animal running. It was the perfect product name for such a progressive company as Melco. Since then, the Buffalo brand has been developed into a solutions business providing ease of use.

MELCO HOLDINGS INC. Investor Information（As of March. 31, 2005）�

The BUFFALO name is derived from "printer buffer" products.

MELCO stands for "Maki Engineering Laboratory Company".

BUFFALO

ＭＥＬＣＯ�Maki�Engineering�Laboratory�Company

Accounts closed�

Scheduled shareholder's meeting�

Dates to determine stock ownership��

��

��

Listed Stock Exchanges�

�

Stock code�

Number of shares issued�

Number of shareholders�

Number of shares per unit

March 31�

June�

Shareholders entitled to vote 　�March 31�

Shareholders entitled to year-end dividend �March 31�

Shareholders entitled to interim dividend 　�September 30�

First Section of Tokyo Stock Exchange and �

First Section of Nagoya Stock Exchange�

6676�

26,125,773 �

13,682�

100

http://melco-hd.jp/koukoku/�

UFJ Trust Bank Limited �4-3, Marunouchi 1-chome, Chiyoda-ku, Tokyo�

UFJ Trust Bank Limited Security Agent Department�10-11, Higashi-suna, 7-chome, Koto-ku, Tokyo 137-8081�Tel. 0120-232-711 (toll free) �Requests for share related documentation can be handled by the UFJ Trust Bank, or on the Internet 24 hours a day.�Tel.0120- 244- 479 (toll free) �http://www.ufjtrustbank.co.jp/�

（main）Daiwa Securities SMBC�（others）Nomura Securities�　　　　Mizuho Investors Securities� 　　　 Nikko Cordial Securities��

notice to shareholders�

Transfer agent��

Handling office��������

Managing underwriters�

�

At the World’s Fair "EXPO 2005 AICHI JAPAN" Expo being held from

March to September 2005, Buffalo has installed a wireless LAN in Chubu

University’s solar airship which will be moored above the site for the duration

of the Expo, and we will be providing a FREESPOT service for visitors to the

Expo for the duration of the event (March 25 - September 25). Using

electricity generated from the light of the sun, this is an environmentally

friendly communications system that is well suited to the Aichi Expo. This

service is combined with an experiment aimed at developing a conventional

emergency communications system for use in disasters.

"EXPO 2005 AICHI JAPAN" Expo's SOLAR airship SoLan

http://melco-hd.jp/MELCO Group

This booklet was made from recycled paper.

On October 1, 2003, MELCO HOLDINGS INC. and BUFFALO INC.（formerly MELCO INC.） switched to a holding company system

through a stock swap, with BUFFALO INC. as a complete subsidiary. At the same time, MELCO INC.'s trading name was changed to

BUFFALO INC.

Domestic operations�CFD SALES INC.�

BUFFALO LOGISTICS INC.�

BUFFALO LEASE INC.�

ORIEBLENET CORP.�

MELCO ONLINE ENTERTAINMENT CORP.�

MELCO PERSONNEL SUPPORT INC.�

MELCO TECHNO-SERVICE INC.

Overseas operations�BUFFALO TECHNOLOGY （TAIWAN） INC. �

BUFFALO TECHNOLOGY （USA）, INC. �

BUFFALO TECHNOLOGY UK LIMITED �

BUFFALO TECHNOLOGY IRELAND LIMITED �

MELCO ASSET MANAGEMENT LIMITED

Headquarters Kamiya Bldg., 11-50, Ohsu 4-chome, Naka-ku, Nagoya, 460-0011, Japan Tel:81-52-251-6891 Fax:81-52-241-7979

Headquarters�Tokyo Branch Office�Headquarters（branch office）�

15, Shibata hondori 4-chome, Minami-ku, Nagoya, 457-8520, Japan�Eitaro Bldg., 2-5, Nihonbashi 1-chome, Chuo-ku, Tokyo, 103-0027, Japan�Kamiya Bldg., 11-50, Ohsu 4-chome, Naka-ku, Nagoya, 460-0011, Japan

Tel:81-52-619-1811 Fax:81-52-619-1800�Tel:81-3-3242-7777 Fax:81-3-5203-8551�Tel:81-52-251-6891 Fax:81-52-241-7979

MELCO HOLDINGS INC. http://melco-hd.jp/ （Code 6676）�

BUFFALO INC. （formerly MELCO INC.）http://buffalo.jp/