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Lighting Strategy: Building on strength

Growth in Asia

Ad Schevers CEO Philips Lighting Asia Pacific Lighting analysts’ day September 20, 2006

Agenda
• Philips Lighting Market Position in Asia • Business opportunities: – Energy saving solutions – China – India – Japan – Automotive lighting – Solid State Lighting • Conclusions

Lighting analysts’ day, Eindhoven, September 20th, 2006

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Philips Lighting
Growing importance of Asia in regional portfolio

2000
Europe 54%

2006 Q2YTD
Europe 47%

Asia 21% Asia 16% Latin America 5% Latin America 5%

North America 25%

North America 27%

Lighting analysts’ day, Eindhoven, September 20th, 2006

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Philips Lighting: market position in Asia
Regional sales distribution within Asia

2006 Q2YTD
China 27% Japan 13%

Asean 18%

Rest Asia Pacific 23%

India/ Pakistan 19%
Lighting analysts’ day, Eindhoven, September 20th, 2006

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Philips Lighting: market position in Asia
Sales growth
USD million
1400 1200 1000 800 600 400 200 0 2000 2001 2002 2003 2004 2005
5

Sales to thirds: USD1.2 bio (2005) CAGR 15% (2000-2005) Market share: 24% (general lighting excluding Japan)

Lighting analysts’ day, Eindhoven, September 20th, 2006

Agenda
• Philips Lighting Market Position in Asia • Business opportunities: – – – – – – Energy saving solutions China India Japan Automotive lighting Solid State Lighting

• Conclusions

Lighting analysts’ day, Eindhoven, September 20th, 2006

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Business opportunity
Energy Saving: The Opportunity for Lighting in Asia • Asian economic growth is boosting energy demands by 45% for global oil demand and 25% of natural gas • Rising energy prices decreases consumer demand and drive inflation • Economic growth requires energy savings • Philips is the global leader in lighting industry with broad portfolio of energy efficient lighting solutions

Lighting analysts’ day, Eindhoven, September 20th, 2006

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Building on strength
Asia Pacific: untapped potential of existing lighting technology Today’s potential savings • 14 billion Euros in energy costs/year • 112 million tons of CO2 emissions/year – Equivalent of more than 5.6 billion trees • More than 296 million barrels of oil/year • Output of more than 70 power plants (@ 2 TWh/yr)

Sources: International Energy Agency (IEA) World Resource Institute (WRI)
Lighting analysts’ day, Eindhoven, September 20th, 2006

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Agenda
• Philips Lighting Market Position in Asia • Business opportunities: – – – – – – Energy saving solutions China India Japan Automotive lighting Solid State Lighting

• Conclusions

Lighting analysts’ day, Eindhoven, September 20th, 2006

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Business opportunity
China - expansion to rural areas
Criteria
Metro
• Population > 10M • GDP > €30B

# of cities
4

Class I Tier 1 cities Class II Tier 2 cities Class II Tier 3 cities

• Population 2- 8M • GDP €10-30B

30

• Population 0.5-2M • GDP €0.2B-10B

257 659

Class II counties

• Population 0.2-0.5M • GDP €10M-200M

2560

Rural counties

• Population <0.2M • GDP < €10M

Thousands

Lighting analysts’ day, Eindhoven, September 20th, 2006

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Business opportunity
China - BEST Partner program introduced to develop distribution. Best Partner Program with selected key distributors – shared marketing programs towards end-user segments & retailers – dedicated portfolio addressed to local market needs – knowledge sharing & satisfaction improvement programs – development thru product & application training – logistic support from both sides

Lighting analysts’ day, Eindhoven, September 20th, 2006

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Business opportunities
China - Further expansion to 2nd/ 3rd tier cities
Criteria
Metro
• • Population > 10M GDP > €30B

# of cities
4

Class I Tier 1 cities Class II Tier 2 cities Class II Tier 3 cities

• •

Population 2- 8M GDP €10-30B

30

• •

Population 0.5-2M GDP €0.2B-10B

257 659

• • • •

Tier 2/3 city market size is large Fast growing needs of high quality lighting products. Build effective distribution coverage (quantity and quality of dealers) End-users marketing approach in professional & consumer segments
Lighting analysts’ day, Eindhoven, September 20th, 2006

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Business opportunity
China; vast supply base for Philips world-wide Next to 8 own factories use of Chinese supply base
USD million
450 400 350 300 250 200 150 100 50 0 2004 2005
Lighting analysts’ day, Eindhoven, September 20th, 2006

Value of external sourcing

2006E
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Intensified R&D investment –
More than 180 lighting engineers Philips Innovation Campus, Shanghai opening December 8th, 2006

Co-allocated with other Research Groups Philips; Linkages with universities & standardization federations; Launching platform for new technologies (SSL, ….)
Lighting analysts’ day, Eindhoven, September 20th, 2006

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Agenda
• Philips Lighting Market Position in Asia • Business opportunities: – – – – – – Energy saving solutions China India Japan Automotive lighting Solid State Lighting

• Conclusions

Lighting analysts’ day, Eindhoven, September 20th, 2006

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Business opportunity
India - SMILE: Sustainable Model In Lighting Everywhere
Target Markets
Total Households: 212 million

Electrified: 118 million

Not Electrified: 93 million

Urban: 8 million Urban: 55 million Rural: 64 Mn ---SMILE Phase 1--

Rural: 85 million

Products developed

Uday – rechargeable portable unit for general illumination

Kiran – hand held, hand cranked LED flashlight
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Lighting analysts’ day, Eindhoven, September 20th, 2006

Business opportunity
India: Rural Distribution Initiative in India
GLS Market The typical rural retailer

Semiurban+rural 63%
2 million retail stores

0.8 million retail stores > 920 towns

Urban 37%
> 2600 smaller towns, > 600 000 villages

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Agenda
• Philips Lighting Market Position in Asia • Business opportunities: – – – – – – Energy saving solutions China India Japan Automotive lighting Solid State Lighting

• Conclusions

Lighting analysts’ day, Eindhoven, September 20th, 2006

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Business opportunity
Japan: Niche approach • We focus on niche opportunities in the professional market. • Key Account Management is key. • Our strength: Automotive Lamps, CDM and UHP • CDM is fastest growing product line in OEM segment

Lighting analysts’ day, Eindhoven, September 20th, 2006

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Agenda
• Philips Lighting Market Position in Asia • Business opportunities: – – – – – – Energy saving solutions China India Japan Automotive lighting Solid State Lighting

• Conclusions

Lighting analysts’ day, Eindhoven, September 20th, 2006

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Business opportunity
Automotive Lighting: Emerging Markets, car production

14,000,000

35,000,000 30,000,000 25,000,000 20,000,000

16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000

12,000,000

10,000,000

8,000,000
15,000,000

6,000,000
10,000,000

4,000,000
5,000,000

2,000,000

2,000,000
0
00 01 04 02 03 05 06 07 08 09 2, 0 2, 0 2, 0 2, 0 2, 0 2, 0 2, 0 2, 0 2, 0 2, 0 2, 0 10

0

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

ASIA

WEST EUROPE SOUTH AMERICA

NORTH AMERICA

UNITED STATES

JAPAN

CHINA

GERMANY

EAST EUROPE

• • • • •

2006: China taking over #3 position, after USA and Japan 2010: Asia car production nearly 2 times Europe or USA 2010: China+India+Thailand+Indonesia+Malaysia = 85% of total Europe production Philips Automotive Lighting is market leader in Japan, Korea, China Philips Market share in Emerging markets comparable to Japan and Korea
Lighting analysts’ day, Eindhoven, September 20th, 2006

2, 00 0 2, 00 1 2, 00 2 2, 00 3 2, 00 4 2, 00 5 2, 00 6 2, 00 7 2, 00 8 2, 00 9 2, 01 0
CHINA INDIA THAILAND INDONESIA MALAYSIA

Source: Global Insight

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Agenda
• Philips Lighting Market Position in Asia • Business opportunities: – – – – – – Energy saving solutions China India Japan Automotive lighting Solid State Lighting

• Conclusions

Lighting analysts’ day, Eindhoven, September 20th, 2006

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Business opportunity
Solid state lighting (SSL) Focus on Application Segments • Fast growing market (40% / year) • Asia is fruitful soil for Solid State Lighting • Philips in Asia is present as LED supplier (Lumileds), as module supplier and as total solution provider • Rapidly building capabilities in the region • Sales growth for total solutions: sales doubled in 2005 and in 2006

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SSL- Luminaires Focus Segments
OUTDOOR
City Beautification Signal & Signage Offices

INDOOR
Shops

Road & Tunnel Residential Hospitality

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Agenda
• Philips Lighting Market Position in Asia • Business opportunities: – – – – – – Energy saving solutions China India Japan Automotive lighting Solid State Lighting

• Conclusions

Lighting analysts’ day, Eindhoven, September 20th, 2006

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Conclusions
Growth in Asia • The demand for energy saving solutions will accelerate market growth. • The well structured distribution in India and the ASEAN countries (High market shares) is a sound basis for rapid growth in fast growing markets. • Expansion of distribution in China will lead to further increase our market share. • China is important as a supply base. • Asia, an early adaptor for new technologies, offers great opportunities to enlarge our share in the professional Lighting business.
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