Market Outlook for High- Brightness LEDs and Solid-State Lighting

Market Outlook for High- Brightness LEDs and Solid-State Lighting ACG SSL Investment Summit July 29, 2009 Robert V. Steele Strategies Unlimited rsteele@strategies-u.com

Outline! About Strategies Unlimited and PennWell! Introduction! HB LED Market! Solid-State Lighting Market! SSL Outlook 2

About Strategies Unlimited! Market research and consulting firm - founded in 1979! Long history of market research on photovoltaics, compound semiconductor materials and devices, image sensors and lasers! Have followed the LED market since 1994! Annual reports on overall HB LED market, LEDs in lighting, and LED lighting fixture market! Annual HB LED industry conference, Strategies in Light, since 2000! Acquired by PennWell Corporation in 2001! www.strategies-u.com 3

About PennWell! Founded in 1910! Headquarters in Tulsa, OK with offices in Nashua, New Hampshire; Houston, Texas; and London! 75 worldwide print and online magazines! 60 worldwide conferences and exhibitions on six continents produced annually! LEDs Magazine (print and online), Strategies in Light events, and Strategies Unlimited provide the world s leading resource for the LED community 4

PennWell s Integrated Media Solution for LEDs and Lighting Market Research Strategies Unlimited!World s leader in photonics market research!custom Research RESEAR CH PRINT Print LEDs Magazine!Global circulation 31,506!7 issues annually including the Suppliers Directory Events Strategies in Light! North America - 2,000! Japan - 2,700 attendees! Europe 2010 (Launch) EVENT S DIGITAL Digital Media LEDs Magazine Online!404,429 monthly page views!79,997 unique monthly visitors enewsletter Webcasts Video 5

Outline! About Strategies Unlimited and PennWell! Introduction! HB LED Market! Solid-State Lighting Market! SSL Outlook 6

LED History! LEDs have been in commercial production for nearly 40 years (billions and billions sold)! For 25 years mainly used as small indicator lamps and alphanumeric displays! Because of limitations on materials technology:! Did not have full color spectrum (e.g. blue and green)! Could not use in full sunlight outdoor conditions! High-brightness AlGaAs introduced in mid-1980s by HP and Stanley Electric (red only) 7

LED History (cont.)! LED materials revolution occurred in the earlymid 1990s! InGaAlP developed by HP and Toshiba produced high-brightness red, orange and yellow (ROY)! InGaN developed by Nichia, Toyoda Gosei and Cree produced high-brightness blue, green and white (using blue + phosphor)! These devices were fabricated with metal-organic chemical vapor deposition (MOCVD), rather than LPE and VPE used in conventional LEDs 8

LED Price/Performance Trends Haitz s Law Source: Roland Haitz 9

Creating White Light with LEDs 10

Evolution of White LED Luminous Efficacy (Best Commercial Products) 6.7X 40-W linear fluorescent 15-W CFL 100-W incandescent lamp 11

HB LED Market Drivers! Full color spectrum, including white! High visibility, including full sunlight conditions! Long lifetimes (10 s of thousands of hours)! Energy efficient! Compact! Automated assembly 12

HB LED Supply Chain Substrate Epitaxy Die Packaged Device Subsystem Integrators OEMs Source: Canaccord Adams Research 13

Outline! About Strategies Unlimited and PennWell! Introduction! HB LED Market! Solid-State Lighting Market! SSL Outlook 14

HB LED Application Segments Lighting Other Indicators, small displays amusement, medical, misc. other Mobile Appliances Signals HB LED Market Automotive Signs and Displays 15

Recent HB LED Market History 6.2X 16

HB LED Market Size and Growth History 17

2008 HB LED Market by Segment Total: $5.1 Billion 18

HB LED Units and ASPs -12%/yr +20%/yr 19

Packaged HB LED Supply Share by Country* - 2008 Total: $5.1 Billion *Headquarters location of company 20

2008 HB LED Market Overview! The market continued on a reasonable growth path for most of 2008!Increased 11% over 2007 to $5.1 billion! Fourth quarter showed signs of market deterioration in several sectors, i.e. mobile phones, automobiles! Unit growth was strong at +25% to 48 billion 21

Near-Term Economic Environment World GDP Growth History and Outlook Source: IMF World Economic Outlook (April 2009) 22

Market Trends in 2009! The worldwide economic downturn is resulting in negative growth for some of the largest traditional HB LED segments:! Mobile phones! Automotive (interior and exterior)! Large outdoor displays (single and full color)! However, several fast-growing emerging segments are showing positive growth:! Backlights for notebook PCs and LCD TVs! Lighting 23

LED Backlights for Notebook PCs! Saw rapidly growing adoption in 2008! Penetration was about 12% for the year, up from 3.5% in 2007; could exceed 50% in 2009! HP, Dell, Apple, Acer, etc. all had new LED backlit models (Dell will go to 100%)! Aided by popularity of ultra-portables, or netbooks, which mainly use LED backlights! Low-cost (<$400), lightweight, minimal functionality, small screens (8-10 inches)! Around 13 million units shipped in 2008; expected to double in 2009 24

LED Backlights for LCD TVs! All major LCD TV manufacturers have LED backlight programs! Many new models introduced in 2009! Samsung, Sony, LG, Sharp, JVC, etc.! Samsung is the most aggressive, with models in the market from Q4 2007! Expects substantial penetration in 2009! Product differentiation, positive profit margin! Price differential with CCFL backlights has been reduced, but still high (~$700-800 at retail) 25

Backlights for LCD TVs (cont.)! Even though unit sales of LCD TVs are projected to grow ~20% in 2009, revenues are forecast to decline! Implies severe pricing pressure, continuing the trend seen in Q4 2008!ASPs forecast to decline 30%! How will higher-priced sets with LED backlights do in this environment? 26

Backlights for LCD TV (cont.)! Backlighting approach has evolved! First Sony models used high-power RGB LEDs in an edge-lit configuration! Color gamut advantage over CCFL! Samsung developed the direct backlight approach, using low-power, enhanced white LEDs! Enabled local dimming/high contrast ratio, also wide color gamut! More recently, thin is in ; edge-lit configuration gives slim profile! Again, Samsung is the leading adopter! Tradeoff between local dimming and slim profile(?) 27

New LED Backlit LCD TVs! Samsung Luxia 6000, 7000 and 8000 Series (edge lit)! ~1 inch thick, compared to 1.9 inches for CCFL and 4.2 inches for direct LED backlight! 40% lower energy consumption than CCFL! LG LH 90 Series (direct backlight)! Local dimming, 2,000,000:1 contrast ratio! 0.94-inch thick (using silicone lenses)! Reduces power consumption by 73% (with intelligent sensor )! Sony Bravia ZX-1 Series (edge lit)! 0.39-inch thick 28

HB LED Market Outlook! Forecasting overall 5% market decline for 2009! LCD TV backlights are the biggest uncertainty! There are some aggressive forecasts; ours is conservative! Excluding LCD TV backlights, the HB LED market will decline by 10% in 2009! With growth resuming in 2010, we are forecasting a CAGR of 19.3% to reach $12.4 billion in 2013! HB LED market fundamentals have not changed! LCD display backlights and lighting will be a large element of this growth 29

HB LED Market Forecast CAGR = 19.3% CAGR = 13.6% 30

Outline! About Strategies Unlimited and PennWell! Introduction! HB LED Market! Solid-State Lighting Market! SSL Outlook 31

Definition! Solid-state lighting is the use of semiconductor-based technology (i.e. LEDs) to create light sources for niche lighting and general lighting applications!includes colors (RGB) and white light! Strictly speaking, organic LEDs (OLEDs) are also included in this definition, but they are still several years away from commercialization for lighting applications 32

Lighting Market Definition! Lighting Market Segmentation! Lamps light source (~$20 billion)! Ballasts -- power! Fixtures! LED Lighting Fixtures ~$80 billion! Convergence of lamps, ballasts and fixtures! Replacement LED lamps as intermediate solution! LED lighting fixtures - integrated long-term solution 33

Elements of an LED Lighting Fixture Fixture Enclosure 34

Designing LED Fixtures Fixture Function - Task light, decorative, outdoor, wet environment Thermal Management Optics Drivers Technical Features - Light output, color, intensity LED Light Engine Regulatory Requirements - UL, IES, ANSI, Energy Star, Title 24... Fixture Design Esthetics Testing Decision flow 35

Design Challenges! Each LED supplier has a different package! No standard drivers or power supplies! Optical design is different for each application! Thermal management must be designed for application environment; i.e. indoor, outdoor, exposed to air, recessed in ceiling, etc. 36

Overall LED Fixture Design! Fixture design needs to incorporate all the preceding elements into a system that optimizes the utilization of LED light output! In the lighting industry, the esthetics of fixture design is often of key importance, with lower emphasis on cost! For practical applications, fixture cost is a primary consideration, especially because of the high cost of LEDs relative to other light sources 37

Efficient Fixture Design is Key to Utilizing High Efficiency of LEDs Example: Efficient Design Start with 90 lm/w 1-W white LEDs (rated at 25 C junction temperature) Assume: 90% electrical efficiency; 90% optical efficiency; operate at 65 C junction temperature Fixture efficacy = 90 x 0.9 x 0.9 x 0.85 = 62 lm/w Example: Inefficient Design Start with 90 lm/w 1-W white LEDs (rated at 25 C junction temperature) Assume: 80% electrical efficiency; 85% optical efficiency; operate at 100 C junction temperature Fixture efficacy = 90 x 0.8 x 0.85 x 0.75 = 46 lm/w 38

LED Lighting Market Significant Near-Medium Term Applications! Replacement lamps! Architectural! Channel letter/ contour lighting! Consumer portable (e.g. flashlights)! Residential! Machine vision! Retail display! Entertainment! Safety/Security! Outdoor area! Off-grid (generally solar-powered)! Commercial/industrial 39

LED Lighting Market Penetration Exit Sign Commercial/Industrial Outdoor Residential Off-grid Market Share 100.0% 80.0% 60.0% 40.0% 20.0% Consumer Portable Entertainment Architectural Retail Display Machine Vision 0.0% Innovators Leading- Edge Adopters Early Adopters Early Majority Late Majority 1338 Laggards 40

LED Lighting Fixtures (1) Zumtobel Bronzelite Philips Hera Leotek -Philips Philips Spectral ERCO Lighting Science Group Yamagiwa Anolis Philips Targetti Philips 41

LED Lighting Fixtures (2) Cosmos Planet Bike DGA Baltensweiler TCP Mule Progress Sol Streamlight 42

LED Lighting Fixtures (3) Albeo GE Lumination 43

LED Lighting Fixtures (4) Cree LLS Beta LED 44

Standards Activity! Standards development is vital to permitting LED lighting to move into mainstream lighting markets! Standards development is underway at:! Illumination Engineering Society of North America (IESNA)! American National Standards Institute (ANSI)! Underwriters Laboratories! US Dept. of Energy (ENERGY STAR)! International Commission on Illumination (CIE) 45

US Standards in Place for SSL Luminaire Efficacy: Light Output Input Power Lumen Depreciation (L70) Color Rendering Index Chromaticity and Correlated Color Temperature IESNA LM-79-08 ANSI C82.2 IESNA LM-80-08 ANSI C78.377A IESNA LM-79-08 CIE 13.3-1995 IESNA LM-58 IESNA LM-79-08 CIE 15: 2004 IESNA LM-58 IESNA LM-16 IESNA Approved Method for the Electrical and Photometric Measurements of Solid-State Lighting Products specifies procedures for measuring total luminous flux, electrical power, luminous efficacy, and chromaticity of SSL luminaires and replacement lamp products. IESNA Approved Method for Measuring Lumen Maintenance of LED Light Sources specifies procedures for determining lumen maintenance of LEDs and LED modules (but not luminaires) related to effective useful life of the product. Developed by IESNA/ANSI in coordination with DOE ENERGY STAR SSL program Specifications for the Chromaticity of Solid State Lighting Products specifies the recommended chromaticity (color) ranges for white light LEDs with various correlated color temperatures (CCTs). IESNA Approved Method for the Electrical and Photometric Measurements of Solid-State Lighting Products specifies procedures for measuring total luminous flux, electrical power, luminous efficacy, and chromaticity of SSL luminaires and replacement lamp products. o! Provide a test report from a laboratory accredited by NVLAP or one of its MRA signatories. 46

Solid-State Lighting Market! Visual appeal Drivers! Saturated colors, near point source of light, design flexibility, digital control of color! Long lifetime (up to 50,000 hours)! Applications with high maintenance costs! High efficiency for white light! Compact form factor! Lack of radiated heat and UV! Low-voltage operation 47

Solid-State Lighting Market! The market is highly fragmented, encompassing many niche applications! General illumination applications are starting to emerge! Hundreds of companies worldwide are participating at the luminaire or fixture level! Strategies Unlimited has identified and described approximately 500 such companies, but there are more! Participants range from start-ups to the world s largest lighting companies (e.g. Philips) 48

Solid-State Lighting Market (cont.)! Fixture volumes are small and costs are high, independent of high cost of LEDs! Products in the market are highly variable in terms of quality! Generally, large lighting fixture company interest is still modest (but growing)! In-house LED expertise is minimal! European companies moving faster than US! Large lighting companies control the access to sales and distribution channels and customers 49

Market for HB LEDs in Lighting! The 2008 market for HB LEDs used in lighting was $470 million! Has been growing at 40-50% per year the highest of any HB LED application! Architectural lighting is the largest application (45% of total)! Projected to reach $1.7 billion in 2013! About 50% of applications use RGB today, but white will increase to more than 70% of the market by 2013 50

Market for LED Lighting Fixtures! $1.5 billion market in 2007!About 1.9% of the world lighting fixture market! Architectural market was the largest segment, followed by consumer portable and safety/security! Grew by 24% in 2008, but slower growth in 2009 due to worldwide recession 51

LED Lighting Fixture Revenue, by Region* *Headquarters location of manufacturer 52

Outline! About Strategies Unlimited and PennWell! Introduction! HB LED Market! Solid-State Lighting Market! SSL Outlook 53

Opportunities for SSL! LED functionality is a good match for many lighting applications, e.g. directed light, controllable light, color! Energy efficiency will be a major driver for moving LEDs into the general (white) lighting market! Lifetime/maintenance costs also important! Many applications where LEDs can provide value on a cost-of-ownership basis! Government subsidies and regulation (e.g. phase-out of incandescent lamps, Title 24 in California) can be important in market development 54

Challenges for SSL! High initial cost! Other alternatives for energy efficiency (e.g. CFL, metal halide)! Consistency of color/binning issues for white LEDs! Adapt to standard electrical interfaces and controls! Realistic claims of performance! Need widespread base of lighting fixture designers and engineers who can design high-efficiency fixtures! LED fixture efficiency, quality and lifetime must be proven to win customer acceptance! Learn from the experience of compact fluorescent lamps 55

Solid-State Lighting Market Outlook! Niche lighting applications will continue to grow! General illumination (e.g. white light applications) will become increasingly important! Continuing improvement in white LED price/ performance! And luminaire performance!! Market penetration will proceed gradually application by application 56

Other Assumptions!!! Continuous improvement in the efficacy of LEDs and LED fixtures Continued LED price erosion Continued R&D efforts for LED lighting products! Standards incorporated into codes and practices in 2009 and beyond!!! Trend towards energy efficiency to continue in spite of energy price fluctuations Fiscal stimulus by various governments will include investments in infrastructure construction projects to promote energy efficiency The effects of the economic downturn will continue until the end of 2009 and recovery will start in 2010 57

LED Lighting Market Evolution Specialty Niches Broader Adoption General Illumination 58

Market Forecast for HB LEDs in Lighting 59

LED Lighting Fixture Market Forecast 60

Thank you! 61