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A NanoMarkets White Paper

Smart Lighting Markets 2012

Published March 2012 © NanoMarkets, LC

NanoMarkets, LC PO Box 3840 Glen Allen, VA 23058 Tel: 804-270-1718 Web: www.nanomarkets.net

NanoMarkets, LC | PO Box 3840 | Glen Allen, VA 23058 | TEL: 804-270-1718 | FAX: 804-360-7259

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The contents of this paper were drawn from the following NanoMarkets report: Smart Lighting 2012
This report provides an analysis of the worldwide smart lighting market and builds on NanoMarkets’ extensive six-year experience of analyzing the solid-state lighting industry. The report shows how new value is being created in the lighting market by adding enhanced electronics and intelligent luminaires and how such product strategies will be able to build on the massive trend towards introducing CFLs, LEDs, OLEDs and other forms of energy efficient lighting. But while energy efficiency is the major current driver for smart lighting, this report also discusses how NanoMarkets foresees the smart lighting market transcending energy efficiency and generating new revenues from improved aesthetics, and more comfortable and healthy lighting. The report focuses, in particular, on how also these opportunities will emerge within the OLED and LED lighting paradigms. But it also identifies the opportunities that smart lighting will create as it adopts more effective networking strategies and becomes part of a future “Internet of things” and Smart Grid. Also included in this new report is an analysis of the smart lighting strategies of the firms that NanoMarkets expects to see as major players in the smart lighting space. This includes the major lighting and building automation firms, as well as the slew of new lighting control start-ups that have emerged in the past few years. In adddition, this report provides an insider’s view on rapidly developing opportunities throughout the entire smart lighting supply chain including developments in the luminaire sector all the way down to the components level. For example, the report includes detailed coverage of where chip makers and sensor manufacturers will be able to derive the most benefit from the smart lighting “revolution.” Also included in the report is a discussion of the likely evolution of smart lighting standards and their importance to smart lighting market development. In addition, there is an eight-year market forecast with breakouts by type of product and end user market segment. TABLE OF CONTENTS Executive Summary E.1 Opportunities and Strategies for Smart Lighting Systems/Luminaire Manufacturers E.1.1 The Shifting Meaning of Smart Lighting E.1.2 Prospects for Immediate Opportunities: Why It's Time to Treat Smart Lighting Seriously E.1.3 How (and Where) New Markets and New Value are Being Created by Smart Lighting E.1.4 Some Risks to Consider for Smart Lighting Manufacturers E.1.5 Smart Lighting Systems Marketing Strategies E.2 The Making of the Smart Lighting Industry: Firms and Sectors to Watch E.2.1 Smart Lighting Start-Up Strategies E.3 Summary of Eight-Year Forecast of Smart Lighting Systems Chapter One: Introduction 1.1 Background to this Report 1.1.1 Some Embarrassing Questions for Smart Lighting Vendors 1.1.2 How Smart Lighting Will Overcome the Burden of its History 1.1.3 Smart Lighting in Search of a Champion 1.2 Objective and Scope of this Report 1.3 Methodology of this Report 1.4 Plan of this Report Chapter Two: Smart Lighting Systems 2.1 Marketable Features and Functions of Smart Lighting Systems: Now and in the Future

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www.nanomarkets.net 2.1.1 Energy Efficiency 2.1.2 Smart Lighting, Communications and Smart Metering: ZigBee, DALI and Demand Response 2.2 Smart Lighting Software 2.3 Smart Lighting Device Evolution, Strategies and Companies 2.3.1 Acuity Brands Controls 2.3.2 Adura Systems 2.3.3 Cavet Technologies 2.3.4 Daintree Networks 2.3.5 Digital Lumens 2.3.6 Easylite 2.3.7 Eaton 2.3.8 Encelium Technologies/Osram 2.3.9 Energy Automation Systems (EASI) 2.3.10 Echoflex Solutions 2.3.11 Enlighted 2.3.12 ETC/Electronic Theatre Controls 2.3.13 Fifth Light Technologies 2.3.14 GE Total Lighting Control 2.3.15 Honeywell Lighting Controls and Ex-Or 2.3.16 Hubbell Building Automation 2.3.17 Leviton 2.3.18 Lumenergi 2.3.19 Lumetric 2.3.20 Lutron 2.3.21 OSRAM Lighting Controls 2.3.22 Philips/Dynalite/Lightolier 2.3.23 Redwood Systems 2.3.24 Schneider Electric 2.3.25 Starfield Controls 2.3.26 Universal Lighting Technologies/Panasonic 2.3.27 WattStopper/Legrand 2.4 Component Level Developments 2.4.1 Smart Lighting Sensors 2.4.2 Smart Lighting Chips 2.5 Key Points from this Chapter Chapter Three: Markets for Smart Lighting 3.1 Key Drivers for Smart Lighting Markets 3.1.1 Energy Efficiency 3.1.2 Health and Mood 3.2 Addressable Markets for Smart Lighting Systems 3.2.1 Commercial and Industrial Markets 3.2.2 Public and Government Buildings 3.2.3 Residential Markets 3.2.4 Outdoor Lighting 3.2.5 Smart Lighting Systems for Automobiles and Other Forms of Transportation 3.3 The Importance of the Retrofit Market for Smart Lighting 3.4 United States Markets for Energy Efficient Lighting Systems 3.4.1 Uncertainties about the Phasing Out of Incandescent Bulbs 3.4.2 Leadership in Energy and Environmental Design (LEED) 3.4.3 Energy Policy Act of 2005 3.4.4 Energy Independence and Security Act (EISA) of 2007 3.4.5 Other Factors 3.5 Japanese Markets for Energy Efficient Lighting Systems 3.5.1 Regulatory and Legal Environment

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www.nanomarkets.net 3.6 Chinese Markets for Energy Efficient Lighting Systems 3.6.1 Impact of Environmental and Energy Legislation and Regulation 3.6.2 Phasing out of Traditional Light Bulbs in China 3.7 Korea Markets for Energy Efficient Lighting Systems 3.7.1 Energy Legislation and the Phasing out of Traditional Light Bulbs 3.7.2 Impact of Environmental Legislation and Regulation 3.8 Taiwanese Markets for Energy Efficient Lighting Systems 3.9 Energy-Efficient Lighting Other Asian Countries 3.9.1 India 3.9.2 Other Nations 3.10 European Markets for Energy-Efficient Lighting 3.10.1 Rules for Phasing Out Incandescent Bulbs in the EU 3.10.2 A Note on the U.K. Markets 3.11 Key Points from this Chapter Chapter Four: Eight-Year Forecast of Smart Lighting Systems 4.1 Methodology of this Forecast 4.1.1 Definitions 4.1.2 Data Sources and Assumptions about Market Size and Penetration 4.2 Eight-Year Market Forecast of Smart Lighting System Type of End User 4.3 Eight-Year Market Forecast of Smart Lighting System Modules by End User 4.4 Eight-Year Forecast of Smart Lighting System Central Controllers by End User 4.5 Summary of Eight-Year Market Forecast of Smart Lighting Systems Revenue by End User and Type of Product 4.6 Eight-Year Market Forecast of Smart Lighting Systems Revenues by Generation of System Abbreviations and Acronyms Used In this Report About the Author List of Exhibits Exhibit E-1: Exhibit 2-1: Exhibit 4-1: Exhibit 4-2: User Type Exhibit 4-3: Exhibit 4-4: Exhibit 4-5: Forecast of Smart Lighting Systems by End User Market ($ Millions) Lutron Lighting Control Systems Forecast of Lights Controlled by Smart Lighting Systems by End-User Market Type Forecast of Local Intelligence in Smart Lighting Systems (Sensors and Intelligent Ballast) by End Forecast of Intelligent Switches for Smart Lighting Systems by End User Type Forecast of Central Controllers for Smart Lighting Systems by End User Type Forecast of Smart Lighting System Revenues by Product Type and End User ($ Million)

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The Smart Lighting Market Needs Leadership

The term "smart lighting" refers to lighting systems that improve on both lighting efficiency and user comfort (or even health) through the use of embedded sensors, control electronics and communications interfaces. In a recent NanoMarkets report we have identified this space as potentially reaching $4.5 billion in revenues by 2016 driven by the quest to improve energy Page | 4 efficiency within buildings and homes and meet requirements brought about by government mandates. However, NanoMarkets believes while the addressable market is substantial, there are no clear leaders in this space and that furthermore, the product and market strategies currently being pursued by the industry are insufficient to capitalize on what is possible. Forecast of Smart Lighting Systems by End User Market ($ Millions) 2012 2014 2016 Commercial and industrial buildings 877.8 1,442.9 2,290.9 Government and public buildings 111.8 189.6 310.4 Residential buildings 0.0 593.2 1,665.5 Streetlights and other outdoor 5.9 100.3 261.1 TOTAL 995.5 2,326.0 4,528.0 © NanoMarkets 2012

2018 3,540.1 494.0 2,544.7 660.4 7,239.2

The current generation of smart lighting systems is now focused almost entirely on large commercial, industrial and public buildings. This makes a lot of sense. Not only is this the market where those (relatively small) firms that play in today’s smart lighting space can get the biggest bang for their marketing buck, but it is the one where it is easiest to make the case for using smart lighting. It can quickly be established whether smart lighting reduces operational expenditures in a way that results in an attractive ROI. But we think that the residential market will eventually also open up to the latest smart lighting technology, too. Here, the historical parallel is with microelectronics-based business telephone systems, which was a rapidly expanding market in the 1980s because they could offer commerce so many more features and capabilities than the old electromechanical systems that went before them. But within a decade all this additional functionality had found its way into residential telephones, and at very low cost. We think that something similar could happen in smart lighting as chips and system design become standardized. That is, within a few years low-cost smart lighting systems will start to target residential lighting markets. That this low-cost issue will be important in residential markets is all but self-evident. But there are other issues for smart lighting system firms to take care of in the residential market.
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Most important of these questions for smart lighting firms is that in the residential sector individual purchases can be quite small, which means that the manufacturers of smart lighting products must build a strong supply chain infrastructure of which major retailers will have to be an important part; this is not always the easiest thing to do. But it may be worth doing, because the addressable market for smart lighting becomes so much larger when potential Page | 5 residential users are brought into the fold; there are just so many of them!
Competitive Landscape: Start-ups Rule the Smart Lighting Market, At Least for Now

There are now about 20 firms offering modern lighting control systems. Among the names are Adura Systems, Cavet Technologies, Daintree Networks, Easylite, Ecoflex Solutions, Energy Automation Systems (EASI), Enlighted, Fifth Light Technologies, Lumenergi, Lutron, Redwood Systems, Starfield Controls and Universal Lighting Technologies. Each of these firms can point to successes, but, as we have already noted, they are mostly smaller firms, often start-ups. Such firms lack the resources (or perhaps the interest) to do the kind of business development work that needs to be done to create an industry out of smart lighting. For now, the approaches of these firms differ, but a review of these firms’ strategies suggests that they hope to thrive—or at least survive—in the marketplace through design and other tactics that include: · Value added features such as "daylight harvesting," where ambient light is sensed throughout the day and the lighting is then raised or dimmed to a preset level. Another possible feature is to provide separate control to different zones in the building or even control of individual lighting fixtures. Again, by historical analogy with small business telephone systems, this aspect of smart lighting systems seems likely to be the main weapon with which the competitive battles in the smart lighting systems market will be fought. However, the small business telephone makers eventually ran out of useful features to add to their systems and the market commoditized; a cautionary tale for smart lighting system companies. Advanced communications interfaces. Who will be first to integrate its smart lighting system with Smart Grid/smart metering solutions and with the Internet-of things, and will potential customers care? But if advanced demand/response solutions become standardized and proliferate, a smart lighting vendor that is early in adopting the correct interfaces may find itself rapidly gaining market share. Number of lights that can be controlled. This obviously translates into which markets can be addressed. Not all systems will be able to control all the lights in a large commercial building. Judging by the examples provided by smart lighting vendors, many of the current

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NanoMarkets, LC | PO Box 3840 | Glen Allen, VA 23058 | TEL: 804-270-1718 | FAX: 804-360-7259

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users of smart lighting systems are medium-size commercial and industrial buildings, not large public buildings, so this should be considered and the systems not over-engineered. · Combine product with some kind of energy management/billing analysis service. The service aspect of the marketing strategy of a smart lighting manufacturer may well include Page | 6 installation or systems integration of some kind. Here is an opportunity to add more service revenues, but it is hard to imagine that this kind of thing will do well outside of the larger customer sector. Superior user interface including Web-based control. More generally, there is clearly competitive advantage in making the system easy to use and install, with at least one vendor promoting its system as plug and play. The problem with this strategy is that it is easily copied. In the long-run, we think that smart lighting systems firms will find it hard to make much headway by stressing this aspect of their offering. All their rivals will have user interfaces as good as or better than they do; or soon could.

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Will the Big Lighting and Automation Companies Move into the Smart Lighting Space?

In spite of these strategies, NanoMarkets is, however, concerned that there is really not enough to distinguish these firms in a way that will be truly meaningful to customers. In other technology markets this has tended to lead to firms having to fall back on hype in promoting their products. Perhaps the additional complexities and costs that smart lighting systems will inevitably bring to the market will simply not be enough to convince potential end users of their efficacy. In other words, in a sense, smart lighting may turn out to not be smart enough! We think that few, if any, smart lighting firms have really messaged what we are talking about here—and that is an entirely new class of systems, fine-tuned for the needs of today’s markets. What the smart lighting market needs, we believe, is leadership from a firm that has the resources to create credibility for the current generation of smart lighting. Such a firm has to be a large one with an established role in the building automation—or much better—the lighting industry. Unfortunately that does not seem to be happening as yet. Most of the large automation and lighting firms, if they are into smart lighting at all, are mostly pushing older technology, albeit in new packages. The smart lighting systems business at the present time finds itself in something of a "Wild West" situation and is in need of an industry leader to tame it and give it credibility. It will take one or more firms taking upon themselves the role of sheriff in this Wild West situation for this to happen. What we are talking about here is firms pushing the concept of smart lighting both to the lighting industry and to the ultimate consumer; in other words, a firm that is willing to create a buzz around the smart lighting concept.
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The arrival of a large firm from the lighting or automation space that is willing to push the smart lighting concept would go a long way to establish smart lighting as a credible product and not just a fad. NanoMarkets doesn’t see this happening in the immediate future. But the potential over the next few years is good for a well-financed prospect to emerge as a smart lighting industry leader. Several of the big lighting firms have smart lighting R&D programs, but the smart lighting sector cannot yet be said to have evolved into an industry. In the future, leadership could come from either the traditional building automation manufacturers or the traditional lighting manufacturers. The traditional building automation firms are long-established automation firms that can incorporate lighting into their general scheme of things. These firms include Johnson Controls, Honeywell and Trane. None of these firms have been especially proactive in smart lighting, but they obviously all have the capability to be the industry champion that we talked about previously. Both Johnson Controls and Trane have been expanding into new markets in the recent past and we believe they could exert an important influence on the smart lighting business going forward. As to the large lighting manufacturers—Philips, GE, Osram, etc.—these firms would be even better positioned to promote smart lighting as a "champion." However, for the time being these companies seem more interested in development issues around smart lighting rather than promoting the concept more generally.

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