4Q09 Channel Monitor Survey Final Report & Topline Charts Presented by: Bill Ablondi Director, Home Systems February 2010 In Partnership with

4Q09 Channel Monitor Survey

Final Report & Topline Charts

Presented by:

Bill AblondiDirector, Home Systems

February 2010

In Partnership with

Attribution & Disclaimer

Attribution

Analyst: Bill AblondiExecutive Editor: Tricia ParksProduced by: Bill AblondiContributor: Yilan JiangPublished by Parks Associates

© February 2010 Parks AssociatesDallas, Texas 75230

All rights reserved. No part of this report may be reproduced, in any form or by any means, without permission in writing from the publisher.

Printed in the United States of America

Disclaimer

Parks Associates has made every reasonable effort to ensure that all information in this report is correct. We assume no responsibility for any inadvertent errors.

Analyst: BA

EE: TP 12/14/10

February 2010 4Q09 Channel Monitor 2

Slide Deck Outline

Source: 4Q09 Channel Monitor Survey© Parks Associates 2010

Slide Deck Outline

Slide 4

Slides 5 - 6: Survey Objectives

Slides 7 - 9: Key Takeaways

Slides 10 - 12: Implications and Recommendations

Slides 13 - 14: Methodology

Slides 15 - 22: Respondent Profiles

Slides 23- 29: Business Characteristics

Slides 30 - 34: Current State of Business Conditions and Expectations for 2010

Slides 35 - 38: Selected Characteristics of Home Theater Systems

Slides 39 - 42: Installation of Photovoltaic Solar Panels

NOTES:

1.Sequence of slides does not match order in which questions were asked. Question numbers are noted on each slide for reference.

2.Copy of the complete questionnaire is available separately.

3.The terms “Electronic Systems Contractor” (ESC), Integrator and Installing Dealer are used interchangeably in this report.

Survey Objectives


4Q09 Channel Monitor Survey: Objectives

Slide 6

• Determine Current State of Business Conditions– Estimate 2009 channel revenue and compare with 2008 and expectations for 2010

– Learn about changes in project mix from New to Existing construction

– Determine breakdown of business by major product categories• Audio• Home Theater• Controls: Lighting, Climate, Widow covering• Energy Monitoring• Video Surveillance• Security & Fire Alarm• Home Networking/Communications • Digital Home Healthcare

– Business focus for 2010

• Characterize Selected Specific Attributes about Home Theater Installations– Use of client-supplied flat panel displays

– Speaker types used in home theater sound systems

• Installation of Photovoltaic Solar Panels – Determine percentage of integrators currently installing– Plans and interest in offering PV solar panels in the future

Key Takeaways


4Q09 Channel Monitor: Key Takeaways

Slide 8

• One third of ESCs reported revenue growth in 2009 from 2008; however, overall average total revenue declined 4.1%

– Electronic systems contractors participating in the 4Q09 Channel Monitor survey reported revenue of $1.7 million on average

– Residential customers accounted for 77% of revenue in 2009; essentially the same as for year 2008

– Revenue generated from projects in existing homes account for 63% of total business in 2009• This is up from 55% in 2008 and only 47% in 2006

– Service programs/contracts account for less than 10% of revenues for ESCs offering them• More than 40% of ESC do not offer service programs/contracts• For a small percentage (8%), such programs account for 20% or more of their revenue

• Respondents are optimistic about business prospects in 2010– On average expectations are that business will grow 9.3% in 2010 from 2009

– 74% of respondents expect sales to improve in 2010 from 2009; only 12% foresee a decline

– ESCs plan to continue focusing on home theaters and audio systems in 2010• 68% of respondents also indicate that lighting controls will be a top three focus category for 2010• Home networking/communications ranked third in the top categories for ESCs focus in 2010

• Most ESCs do not perform high-voltage electrical contracting work– 10% do high voltage work; 4% have separate divisions that perform these tasks– High-voltage work accounts for an average of 16% of revenues for those firms doing that

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4Q09 Channel Monitor: Key Takeaways (CONTINUED)

Slide 9

• Home theaters and audio systems account for 65% of revenues on average– All other categories account for less than 10% of ESCs’ business

– Home networking/communications and lighting controls each account for 8% of revenues• These percentages are likely to grow as 68% of ESCs plan to focus on lighting controls in 2010 and 32% on

home networking and communication systems

– Security and fire alarm systems account for only 6% of the typical ESC’s revenue, but 23% indicated this to be an area of focus for 2010

– Energy monitoring and climate controls account for an insignificant portion of business currently, but more than 20% of ESCs plan to focus on these areas in 2010

• 10% plan to focus on digital home health care in 2010

• Home theater audio is dominated by in-ceiling and in-wall speakers– Together these types of speakers account for 75% of speakers installed for home theater audio

– Freestanding speakers account for under 20% of home theater audio speakers• This percentage has remained flat over the past two years (comparing with1Q08 Channel Monitor Survey)

– 80% of ESCs allow clients to supply flat panels for their home theater systems• This is due to rapid price declines that leave little or no margin to be made in the panels

• Approximately 40% of respondents plan to begin installing PV solar panels– Only three respondents currently install these systems– 21% of respondents are exploring the possibility of offering PV solar panels actively– 38% need more information about the business opportunity before being able to make

a decision

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Implications & Recommendations


4Q09 Channel Monitor: Implications & Recommendations

Slide 11

• Overall, revenues declined in the channel, BUT 33% of respondents to the 4Q09 Channel Monitor Survey increased their business in 2009(Responses to the 2Q09 Survey provide some useful insights into what actions drove growth – see slide12)

–72% made changes to their business offerings

–38% made advertising & marketing adjustments …notably targeting retrofit and upgrade opportunities

–26% made operational changes including hiring more sales staff

• Most ESCs plan to focus on lighting controls to help grow their businesses in 2010–Parks Associates’ 3Q09 Residential Energy Management Survey of consumers revealed that light dimming systems are attractive to consumers …if they can be shown to save money

–Manufacturers and dealers must invest in consumer education in order to be successful

–Lighting controls can be part of the product portfolio offered under the broader umbrella of energy management systems

• Many ESCs see a good business opportunity in offering photovoltaic solar panels–Manufacturers of these systems need to educate the channel on the business opportunity

–Many ESCs are wary of not having the knowledge and expertise to install PV panels – clearly manufacturers must provide training programs to leverage the expertise ESCs already possess

• About 20% of ESCs plan to focus on Security, Video Surveillance, Energy Monitoring and Climate Controls …only 10% on Digital Home Healthcare–Parks Associates‘ consumer research and analysis shows that all of these areas offer significant growth opportunities for the right businesses

–Manufacturers of these categories must invest in channel education and development to prompt more dealers to begin offering these categories


Actions Taken by ESCs Expecting to Grow Their Businesses (2Q09 Channel Monitor Survey)

Slide 12

Note: the percentage of ESCs responding to the 2Q09 Channel Monitor Survey that were expecting business to grow in 2009 was 37%,about the same percentage as the percentage that reported actual gains for 2009 on the 4Q09 survey (33%).Although this was not a longitudinal study that surveyed the SAME dealers, it is likely that the actions taken by dealers planning to grow their business in 2Q09 were effective.

Methodology


4Q09 Channel Monitor: Survey Methodology

Slide 14

• Online Survey

• Survey deployed from December 7 to December 24, 2009

• Respondents recruited from CEDIA’s Electronic Systems Contractor (ESC) membership

• Participation limited to electronic systems contractors generating at least a portion of their revenue from residential customers

– 158 ESCs participated

– 134 respondents completed the entire survey

– Results in this report are shown for ALL qualifying respondents answering specific questions; not just for those completing the entire survey

• A copy of the Questionnaire is available in a separate file

Respondent Profiles


All Respondents Install Residential Systems

Slide 16


Audio/Video Systems are Primary Systems for ESCs

Slide 17


Most Respondents Have Been in Business 10 years or More

Slide 18


Geographical Regions Represented

Slide 19


Overall Respondents Have 8 Employees on Average

Slide 20


Most ESCs Do Not Perform High Voltage Electrical Work

Slide 21


Electrical Contracting Revenues are a Small Portion of Overall Business for ESCs Providing These Services

Slide 22

NOTE: Small Sample

Average = 16%

Business Characteristics


Average 2009 Gross Revenue = $1.7M

Slide 24

Average = $1.7M


2009 Revenue Increased for 33% of ESCs, but was Down 4.1% from 2008 on Average Overall

Slide 25


No Change in Percentage of Revenue from Residential Customers from 2008 to 2009

Slide 26


Projects in Existing Homes Generated Bulk of Revenue in 2009

Slide 27


Revenue from Projects in Existing Homes Continued to Grow in 2009 …as was Projected in 1Q09

Slide 28


Revenue from Service Programs/Contracts Only a Small Portion of Average ESC’s Business

Slide 29

Current State of Business Conditions and Expectations for 2010


Home Theaters and Audio Systems Generate 65% of ESC’s Revenue on Average

Slide 31


Not Surprisingly A/V Systems Will Continue to be Primary Focus in 2010

Slide 32


ESCs Expect 2010 Sales to be >9% Higher than 2009

Slide 33


Electronic Systems Contractors Optimistic about 2010

Slide 34

Selected Characteristics of Home Theater Systems


Most Contractors Allow Clients to Provide Flat Panels

Slide 36


ESCs Likely to Allow Clients to Provide Flat Panels More Commonly in Future

Slide 37


In-Ceiling/Wall Speakers Most Common for Home Theater Sound Systems

Slide 38

Installation of Photovoltaic Panels


Few ESCs Install PV Solar Panels

Slide 40

2 respondents beganinstalling in 2008;

1 in 2009


Approximately 40% of ECSs Plan to Offer PV Solar Panels in the Future

Slide 41


>20% of ESCs Actively Exploring Possibility of Offering PV Solar Panels

Slide 42

www.parksassociates.com 43

Contact Information

Bill AblondiDirector, Home Systems

Parks Associates5310 Harvest Hill Road, Suite 235

Dallas, Texas 75230

Direct: 914-663-8440

[email protected]

Documents

4Q09 Channel Monitor Survey Final Report & Topline Charts Presented by: Bill Ablondi Director, Home Systems February 2010 In Partnership with