1. 4Q09 Channel Monitor Survey Final Report & Topline Charts Presented by: Bill Ablondi Director, Home Systems February 2010 In Partnership with

2. Attribution & Disclaimer Attribution Analyst: Bill Ablondi Executive Editor: Tricia Parks Produced by: Bill Ablondi Contributor: Yilan Jiang Published by Parks Associates © February 2010 Parks Associates Dallas, 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 20104Q09 Channel Monitor2

3. Slide Deck Outline

4. 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.

5. Survey Objectives

6. Source: 4Q09 Channel Monitor Survey © Parks Associates 2010 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

7. Key Takeaways

8. Source: 4Q09 Channel Monitor Survey © Parks Associates 2010 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 1 of 2

9. Source: 4Q09 Channel Monitor Survey © Parks Associates 2010 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 2 of 2

10. Implications & Recommendations

11. Source: 4Q09 Channel Monitor Survey © Parks Associates 2010 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

12. Source: 4Q09 Channel Monitor Survey © Parks Associates 2010 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.

13. Methodology

14. Source: 4Q09 Channel Monitor Survey © Parks Associates 2010 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

15. Respondent Profiles

16. Source: 4Q09 Channel Monitor Survey © Parks Associates 2010 All Respondents Install Residential Systems Slide 16

17. Source: 4Q09 Channel Monitor Survey © Parks Associates 2010 Audio/Video Systems are Primary Systems for ESCs Slide 17

18. Source: 4Q09 Channel Monitor Survey © Parks Associates 2010 Most Respondents Have Been in Business 10 years or More Slide 18

19. Source: 4Q09 Channel Monitor Survey © Parks Associates 2010 Geographical Regions Represented Slide 19

20. Source: 4Q09 Channel Monitor Survey © Parks Associates 2010 Overall Respondents Have 8 Employees on Average Slide 20

21. Source: 4Q09 Channel Monitor Survey © Parks Associates 2010 Most ESCs Do Not Perform High Voltage Electrical Work Slide 21

22. Source: 4Q09 Channel Monitor Survey © Parks Associates 2010 Electrical Contracting Revenues are a Small Portion of Overall Business for ESCs Providing These Services Slide 22 NOTE: Small Sample Average = 16%

23. Business Characteristics

24. Source: 4Q09 Channel Monitor Survey © Parks Associates 2010 Average 2009 Gross Revenue = $1.7M Slide 24 Average = $1.7M

25. Source: 4Q09 Channel Monitor Survey © Parks Associates 2010 2009 Revenue Increased for 33% of ESCs, but was Down 4.1% from 2008 on Average Overall Slide 25

26. Source: 4Q09 Channel Monitor Survey © Parks Associates 2010 No Change in Percentage of Revenue from Residential Customers from 2008 to 2009 Slide 26

27. Source: 4Q09 Channel Monitor Survey © Parks Associates 2010 Projects in Existing Homes Generated Bulk of Revenue in 2009 Slide 27

28. Source: 4Q09 Channel Monitor Survey © Parks Associates 2010 Revenue from Projects in Existing Homes Continued to Grow in 2009 …as was Projected in 1Q09 Slide 28

29. Source: 4Q09 Channel Monitor Survey © Parks Associates 2010 Revenue from Service Programs/Contracts Only a Small Portion of Average ESC’s Business Slide 29

30. Current State of Business Conditions and Expectations for 2010

31. Source: 4Q09 Channel Monitor Survey © Parks Associates 2010 Home Theaters and Audio Systems Generate 65% of ESC’s Revenue on Average Slide 31

32. Source: 4Q09 Channel Monitor Survey © Parks Associates 2010 Not Surprisingly A/V Systems Will Continue to be Primary Focus in 2010 Slide 32

33. Source: 4Q09 Channel Monitor Survey © Parks Associates 2010 ESCs Expect 2010 Sales to be >9% Higher than 2009 Slide 33

34. Source: 4Q09 Channel Monitor Survey © Parks Associates 2010 Electronic Systems Contractors Optimistic about 2010 Slide 34

35. Selected Characteristics of Home Theater Systems

36. Source: 4Q09 Channel Monitor Survey © Parks Associates 2010 Most Contractors Allow Clients to Provide Flat Panels Slide 36

37. Source: 4Q09 Channel Monitor Survey © Parks Associates 2010 ESCs Likely to Allow Clients to Provide Flat Panels More Commonly in Future Slide 37

38. Source: 4Q09 Channel Monitor Survey © Parks Associates 2010 In-Ceiling/Wall Speakers Most Common for Home Theater Sound Systems Slide 38

39. Installation of Photovoltaic Panels

40. Source: 4Q09 Channel Monitor Survey © Parks Associates 2010 Few ESCs Install PV Solar Panels Slide 40 2 respondents began installing in 2008; 1 in 2009

41. Source: 4Q09 Channel Monitor Survey © Parks Associates 2010 Approximately 40% of ECSs Plan to Offer PV Solar Panels in the Future Slide 41

42. Source: 4Q09 Channel Monitor Survey © Parks Associates 2010 >20% of ESCs Actively Exploring Possibility of Offering PV Solar Panels Slide 42

43. www.parksassociates.com43 Contact Information Bill Ablondi Director, Home Systems Parks Associates 5310 Harvest Hill Road, Suite 235 Dallas, Texas 75230 Direct: 914-663-8440 ablondi@parksassociates.com