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`Lighting the way:
`Perspectives on the global
`lighting ma
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`Lighting the way:
`Perspectives on the global
`lighting market
`
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`Foreword
`
`The 2011 edition of "Lighting the way: Perspectives on the global lighting market " gave
`a comprehensive perspective on the global lighting market and received overwhelm—
`ingly positive feedback from across the lighting community. This year's edition features
`updates on the findings presented in that report. It addresses recent changes in the
`market environment and puts additional emphasis on the increasing volatility of the
`macroeconomic environment and the accelerated price erosion of LED components.
`
`This year. McKinsey has leveraged an even broader variety of sources and stakeholders
`to cross—check key assumptions of the updated McKinsey 2012 Global Lighting Market
`Model and substantiate the views on development of the lighting market as well as key
`industry trends The source base was expanded by a lighting industry panel consisting
`of multiple players along the lighting value chain a lamp and fixtures companies (Dialight.
`Gerard Lighting Group. Osram. and the Panasonic Corporation. among others]; LED light
`engine and driver companies (including Bridgelux. NXP Semiconductors. and Xicato};
`and lighting product wholesalers {Rexel Solar. and Sonepar. for example). Multiple
`companies from other value chain steps also took part. such as lighting control system
`previders and electrical product retailers.
`
`McKinsey has been working extensively in the lighting industry for many years. investing
`over USD 3 million on primary research through McKinsey's global LED Competence
`Center. McKlnsey is also heavily engaged in adjacent industries, such as the clean-tech
`industry. and has brought out publications such as "McKinsey on Sustainability &
`Resource Productivity" and "Capturing opportunities in energy efficiency."
`
`This updated report "Lighting the way: Perspectives on the global lighting market" was
`funded by McKinsey and draws upon the firm’s accumulated industry insights together
`with synthesized data from external sources. The appendix contains a full list of refer-
`ences and additional details of the assumptions supporting the findings in this report.
`We assume that readers will be familiar with last year's report. and often draw compari—
`sons with statements and figures mentioned in that publication.
`
`Forecasts in this publication cannot offer any guarantees of a specific future path. as
`many uncertainties underlie the development of the market and the industry. However.
`McKinsey's research reveals clear indications of the trends described. and we very
`much hope this report will be of assistance to stakeholders in this industry.
`
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`Lighting the way:
`5‘.--|'<|ti-t'|_i\r-.-. llII I||-- '_'_[ll]‘\l|
`
`Ii'.!".1[‘:||~.'_ r1-:||l(i-l
`
`5
`
`Contents
`
`Executive summary
`
`1.Highly dynamic environment
`
`1.1 Volatile economic context
`
`1.2 Accelerated regulatory intervention worldwide
`
`1.3 Transformation of the energy mix under way
`
`2.Update on the global lighting market
`
`2.1 Macroeconomic change affecting all applications
`
`2.2 Factors fueling the further uptake of LED
`
`3. Deep dive on the general lighting market
`
`3.1 Applications: Faster LED price erosion having varying impact
`
`3.2 Geographies: Asia continues to lead the global LED general lighting market
`
`3.3 Market segment by product grade: Commodity segment on the rise
`
`4.5hifting industry landscape
`
`4.1 Disruption of the industry structure
`
`4.2 New downstream business opportunities
`
`Appendices
`
`A‘ Definition and scope of each lighting market category
`B. McKinsey's 2012 Global Lighting Market Model
`0. Additional key exhibits
`D. Bibliography
`
`7
`
`9
`
`9
`
`11
`
`12
`
`14
`
`14
`
`16
`
`23
`
`23
`
`26
`
`30
`
`32
`
`32
`
`36
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`41
`
`41
`42
`50
`53
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`Important notice
`
`This market report has been prepared by a McKinsey team on the basis of public sources
`and proprietary information gathered by the McKinsey global LED Competence Center
`via market and industry surveys. Other information used includes McKinsey's 2011 Global
`Lighting Professionals and Consumer Survey; inputs from a broad industry panel: the
`Pike Research Global Buitding Stock Database 2012; [he US Department of Energy 2012
`Multi-‘r’ear Program Plan: and other sources {please refer to Appendix D for a full list of
`references). In preparing this market report. the team has relied on the accuracy and com—
`pleteness of the available information and has not undertaken independent verification of
`the accuracy or completeness of such information.
`
`Neither the market report nor any part of its contents are intended or suited to con—
`stitute the basis of any investment decision (including. without limitation, to purchase
`any securities of any listed company or in connection with the listing of any company}
`regarding any company operating in the market covered by this market report or any
`similar markets.
`
`This market report contains certain forward~looking statements. By their nature. forward-
`Iooking statements involve uncertainties because they relate to events that may or
`may not occur in the future. This particularly applies to statements in this report contain
`ing information on future developments. earnings capacity. plans and expectations
`regarding the business. growth and profitability of companies operating in the market
`covered by the lighting market or any similar markets. and general economic and
`regulatory conditions and other factors that effect such companies. Forward-looking
`statements in this market report are based on current estimates and assumptions that
`are made to the McKinsey team's best knowledge. These forward—looking statements
`are subject to risks. uncertainties and other factors that could cause actuat situations
`and developments to differ materially from and be better or worse than those expressly
`or implicitly assumed or described in these forward—looking statements. The market
`covered by this report is also subject to a number of risks and uncertainties that could
`cause a forward—looking statement. estimate. or prediction in this market report to
`become inaccurate. In light of these risks. uncertainties, and assumptions, future events
`described in this market report may not occur. and forward—looking estimates and fore-
`casts derived from third—party studies that have been referred to in this market report
`may prove to be inaccurate. In addition. McKinsey does not assume any obligation to
`update any forward-looking statements or to conform these forward-tooking state—
`ments to actual events or developments.
`
`McKinsey does not assume any responsibility towards any persons for the correct-
`ness and completeness of the information contained in this market report.
`
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`Lighting the way:
`i’i-rsiii-i‘rit't-w nu Iiiz- '_'_iIIi‘.li
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`li-.J,'Iitir:_i.; mnrlu-t
`
`7
`
`Executive summary
`
`The findings in McKinsey's 2011 "Lighting the way" report - the first to provide a holistic
`view of the fragmented and complex global lighting industry — still hold true in general
`
`today. The market is on a clear transition path from traditional lighting technologies
`------
`to LED. However. world events over the past
`The market is on a ciear transi— year have given ciearer contours to the light—
`"00 path from traditional light-
`ing industry‘s development. and some market
`i"‘9 technologies to LED
`parameters have shifted or accelerated.
`
`On the one hand, the world's ongoing financial turbulence and Europe's debt crisis
`have inevitably had a negative impact on global and regionai economic growth. both
`actual and projected. This has also adversely affected the lighting market. On the other.
`
`regulation across the globe has become more
`stringent. fueling the penetration of more energy—
`efficient light sources. such as LEDs. For exampie.
`China has now passed legislation to ban incan-
`descent lightbulbs. Governments have also
`reacted to the disaster in Fukushima by debating
`(and in some cases deciding on} a nuclear phaseout. This is expected to boost the
`uptake of low—energy light sources that help to close the looming energy gap.
`
`Regulation across the globe
`has become more stringent,
`fueling the penetration of more
`energy—efficient light sources
`
`Another vital metric has altered. LED prices have eroded more aggressiveiy. pulling
`forward the payback time of LED lighting. The inflection point for LED retrofit bulbs in
`
`the residential segment. for example. is now likely to be around 2015. McKinsey's 2012
`.
`-
`Global Lighting Market Model calculates the LED
`LED prices have eroded more
`share in general lighting at 45 percent in 2016 and
`aggrBSSivgly- putting forward the
`almost 70 percent in 2020 — 2 and 5 percentage
`Daybed" tlme 0‘ LED lighting
`points higher. respectively. than predicted in 2011.
`
`Both the shifting macroeconomic context as well as the accelerating LED price erosion
`have affected long-term forecasts of the size of the lighting market. The updated McKinsey
`market model indicates revenues of around EUR 100 billion for the global market in 2020 —
`a decline of over 5 percent versus last year‘s forecast. The total market is expected to
`grow annually by 5 percent through to 2016. and by 3 percent thereafter until 2020.
`A breakdown by sector shows that general lighting has been impacted the most. The
`— _ _ __
`_
`forecast of market size for this segment in 2020 is
`The total market is expected
`around EUR 83 billion — some EUR 5 billion lower
`to grow annually by 5 percent
`than last year‘s projection.
`through to 2016. and by 3 per—
`
`The figures for automotive lighting (represent-
`cent thereafter until 2020
`ing around 20 percent of the total market} have
`'
`changed only slightly. Adiustments to vehicle unit production and sales forecasts due
`to macroeconomic volatility have partially been offset by a modified methodology.
`In addition. lower exposure to LED price erosion given the smaller LED share in this
`segment has further reduced the impact of market changes. The revenue outlook has
`remained stable, at around EUR 18 billion by 2020. Backlighting. by contrast. is antici—
`pated to shrink faster than previously estimated. Lower sales forecasts for LCD TVs and
`monitors. accelerated penetration of OLED [organic light—emitting diode) products. as
`well as higher LED price erosion are key contributors to a swift decline in market size.
`falling to EUR 1.0 — 1.5 billion by 2016.
`
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`

`

`As last year. general lighting was divided into seven applications: residential. office.
`shop. hospitality. industrial, outdoor. and architectural lighting. The faster LED price
`erosion has raised forecasts for LED penetration in many of the segments _ office.
`shop. and hospitality. for example. while decreasing the size of the lighting market
`overall by value. Forecasts tor LED uptake in the residential segment remain high. at
`almost 50 percent in 2016 and over 70 percent in 2020. Architectural lighting remains
`the early adopter. and its LED market share is expected to reach close to 90 percent
`by 2020.
`
`In terms of the regional split. Asia is expected to account for approximately 45 percent
`of the global general lighting market by 2020. Asia currently leads the market transi-
`tion to LED in general lighting. driven especially by swift penetration in Japan and
`
`China. A new analysis this year — market seg—
`ment by product grade for global general light—
`ing — reveals that the fastest growth is in the
`commodity segment. forecasting an increase of
`EUR 10 billion by 2020. Again. it is mainly Asia
`driving growth in this market segment.
`
`Asia is expected to account for
`approxrmately 45 percent of the
`global general lighting market
`by 2020
`
`Meanwhile. disruption of the industry structure is becoming more apparent. Value in
`the LED chip and package market is set to shift from backlighting to general lighting,
`and players are beginning to expand downstream along the value chain. The evolv—
`ing LED market is impacting industry dynamics
`along the entire general lighting value chain.
`with effects on light engine standardization. the
`fixtures market. replacement versus new instal—
`lation. and channel mix.
`
`Value in the LED chip and pack-
`age market is set to shift from
`backlighting to general lighting
`
`New business opportunities are also emerging as the industry landscape is redrawn.
`The lighting control system market is already mushrooming. with a growth rate antici-
`pated at almost 20 percent p.a. through to 2020. While office is currently the largest
`segment in this area. expansion is expected in residential and outdoor. Service—related
`
`businesses in the fields of maintenance. technical
`solutions. and financial services represent merely
`the beginning of what promises to be a new era of
`business modets in the lighting arena.
`
`The lighting control system
`market is already mushrooming.
`with a growth rate anticipated
`
`at almost 20 percent p.21.
`
`The transition of the global lighting market
`towards LED is triggering and accelerating ever
`more pronounced discontinuity in industry structures. Players will be well advised to
`analyze the coming repercussions in their segment of the value chain. and poeition
`themselves for change.
`
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`Lighting the way:
`|ti:-.l1ll'1ittnainii-.-11\'iiii..itiii:-I1I
`
`9
`
`1. Highly dynamic
`environment
`
`The global lighting market is impacted by multiple factors — three are particularly impor—
`tent. The first is the macroeconomic situation, which is influencing new construction
`and consequently the number of new lighting installations. Second, energy efficiency
`regulations and greater energy awareness are redefining future lighting product portfo—
`lios. And third, government action limiting certain energy sources — key being nuclear
`power due to events over the last year — will result in additional demand for energy-
`efficient products. such as LEDs. Assessing these environments for change is vital to
`understand current and (probable) future shifts in the global lighting market.
`
`1.1 Volatile economic context
`
`The global economic situation has developed less favorably than expected since mid—
`2011 . leading to downward adjustments of the 2016 GDP forecast by approximately
`2 percent.‘ This adjustment stems from a number of unfavorable developments fueled
`by the aftermath of the global financial crisis and Europe's ongoing debt crisis.
`
`According to political commentators. Europe's debt crisis increasingly threatens the
`region‘s economic stability without a visible and unified strategy to counter the effects.
`Analysts have pointed to the bailout of Greece in Qt 2012. a parallel government crisis
`in the country. and disagreements between governments at an EU level on how to best
`tackle fiscal issues? Europe's 2016 GDP forecast has been lowered by 3 percent com—
`pared to 2011 {Exhibit 1). Europe's struggles impact the world economy as the region
`contributes almost 30 percent to global GDP.3
`
`Exhibit 1
`
`Europe‘s economic growth forecast has declined
`Change in GDP iorocaat from March 2011 to March 2012(real1by region
`
`— 20112012
`
`2% 1'30
`7..
`1.25
`.."
`120
`1.15
`1.10
`
`201011 12 13 14 15 2016
`
`201011 12 13 14 152016
`
`201011 12 13 14 152016
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`1.05
`1.1
`
`1.4
`
`1.3
`
`1.2
`
`1.1
`
`.211.
`. "Y.
`
`1.4
`1.3
`
`1.2
`
`1.4
`1.3
`
`1.2
`1.1
`
`fl-LI—L—I—I—I—J
`om—ae-u
`201011 12
`13 14 152016
`201011 12 13 14 152016
`SOURCE Mcltili'iuy analysis and addilmnal source: {see Minute 41
`
`04-_.i_l_n_a._n._i
`201011 12 13 14 152016
`
`.
`2
`3
`4
`
`iHs Global insighi watch 201 it; me Global Insight [March 201210)].
`Financial Times Deulscnbno {June 2012:.
`IHS Globat Insight {June 2011].
`IHS Global Insight {March 20111,le Global Insight [March 20121120}.
`
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`

`10
`
`Emerging countries are no exception. Standard 3. Poor's has just recently down—
`graded lndia's debt rating due to the country‘s high deficits. relatively low growth rate.
`and the lack of much—needed economic reforms.5 China and Brazil have also dipped
`below their long-term growth trend.6
`
`These updated and more conservative economic forecasts are having an impact on light—
`ing market forecasts. However. a clear distinction needs to be made between translating
`economic forecasts to the luminaire and the lamp markets. {Please refer to Exhibit 25 in
`Appendix C [or a definition of the lighting product value chain.)
`
`The market for luminaire and lighting system control components is predominantly
`driven by new installations. New installations are linked to construction activity. and
`there is a clear correlation with GDP. This is supported by the fact that heavy invest—
`ments in the installation of fixtures are more likely to be postponed when the economy
`is under strain. However. the lamp market is mainly driven by replacements. The lat-
`ter is a market by nature more resilient to overall macroeconomic trends: it depends
`almost solely on the number of installed sockets and the lifetime of the technologies in
`place. Even if incomes deteriorate significantly. consumers will still need to replace a
`tailed light source. The lamp market therefore correlates with GDP to a lesser degree.
`A correlation analysis of both global lamp and luminaire markets with GDP for 2005 to
`2011 substantiates these assumptions (Exhibit 2).
`
`Exhibit 2
`
`The global luminaire market has a high correlation with global GDP
`
`Wood real GDP \rs global lamp and luminaire markets
`World real GDP vs. world global lamp and
`3m:
`.nrjami
`.n 'gi}!‘ -e.-:,I
`'.
`luminaire markets: YOY growth rates
`i_i.-,.i ljilliun'fi -'|["t u
`'11:.I twin. lJ.-.:H.m:tvi<a:
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`
`Global luminaire World YoY market growth
`II Lamp market
`market
`'I"--‘-"-=-'”'
`1 Luminaim market
`J/
`
`140
`
`135
`130
`
`0.12
`0.03
`0.04
`
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`,--’
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`
`’1'
`
`ff.
`Global
`lamp markel
`
`Wand GDP.
`real
`
`
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`g «0.04
`,
`
`
`
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`n
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`03
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`10
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`2005
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`2011
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`0.05
`0.04
`0.02
`0
`
`World GDP, real. YoY growth-‘--\-:'-.‘.n'.
`
`SOU ROE McKinsey walrus and nd'ihtional sources {see footnote h
`
`5 Rumors [April 2012].
`6 Center for Economic and Policy Research. Ekazii [March 2012:; Channel News Asia [March 2012].
`?
`IHS Global Insight [June 2012:; CSEL [July 20‘ 1}: Frost its Sullivan [August 2011}.
`
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`Lighting the way:
`lliizhli t|_\ii:iiiilr i-mii immnr-Iil
`
`11
`
`1.2 Accelerated regulatory intervention worldwide
`
`Besides macroeconomic developments. regulation affecting lighting products is a Key
`determinant of the future lighting market. Governments around the globe are acceler-
`ating initiatives in this field along two dimensions. Banning inefficient technologies is
`one. The other is to pass more stringent legislation on energy efficiency requirements
`and offer incentives for entire building infrastructures. This path will further propel
`energy-efficient lighting technologies. such as LEDs.
`
`Bans on specific technologies are being passed in ever more countries for both residen—
`tial (Exhibit 3} and commercial lighting products. China has recently amended a procla—
`mation to ban incandescent l'rghtbulbsa — legislation is backed by the country‘s energy
`conservation law.g Europe is further accelerating the switchover to more ecological
`lighting sources by extending its regulations to ban low-voltage halogen lamps.m
`
`Exhibit 3
`
`The incandescent ban is now a global movement in residential lighting and
`is expanding into halogen
`.—. Tim unllban
`Timelin-z-
`ILl
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`- Fur"!!! lefplalrun regudmg rah-clot hmpa in a: 20:2 hlgl‘lly "my
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`Macon! bulb 9!qu and ulnhy 20124111 3 Whnlll'f bans
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`9—— :ouw —- x
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`New Tune otyear the ban Come: Into «fleet US. Russia = January f. EU = august 30. China = Septemu 30. Bran In June so
`SOU RGE McKinsey mm and :dnihnnnl sources {see rootlets ll}
`
`Second. legislators are increasingly extending energy efficiency requirements and incen—
`tives to entire building infrastructures. The EU has for example ruled that by 2020. all new
`building structures should consume "nearly zero” energy.12 Corresponding design
`standards and ratings classifying energy efficiency are finding widespread and growing
`adoption across geographies. such as BFIEEAM in the European Union.13 CASBEE in
`
`a National Rolorm and Dwalovnwm Commission {201 '-l_
`9 The Cenlral People's Governmanl or the People's Republic or Cnina {200?}.
`10 European Lamp Companies Federation {Fennery 2012:.
`ll McKiI'Isoy 8. Company {201 1}: The Central People‘s Government 0| Ibo People's Republic of China [200?];
`Bureau of hrmrgy trimmy {201mtumpeanUniunt2009]:Gun5iLllarill’1us {20 I I}; Wlflrfljjfl oi Brazil [June 2m 1}.
`12 Furor-nan Cotmcil for an Fmrgy Fflicicnl Fcnnnrny [t'k‘lnbnr 9010].
`13 BREEAM [2012}.
`
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`12
`
`Japan.M and standards for green construction in China.‘5 In the US. LEED and the newly
`introduced International Green Construction Code (lgCC) are being adopted by an ever
`greater number of local jurisdictions.”3 In South Africa. laws were passed in late 2011
`to ensure that new buildings meet specific energy efficiency requirements.”
`
`In addition to regulatory action. global campaigns to raise awareness have been put
`in place to emphasize the role that energy-efficient lighting can play in reducing giobal
`energy consumption. A prominent example of this is the enlighten initiative by the
`United Nations Environment Programme [UNEP] and key lighting players.“a Another is
`The Climate Group‘s LightSevers program. which has recently been further accelerat—
`ing its activities.19
`
`1.3 Transformation of the energy mix under way
`
`As noted in our 2011 report. the nuclear disaster in Japan in Q1 2011 has already
`impacted energy requirements there, The majority of residents and local govern-
`ments strongly oppose continuing on the nuclear power path?0 and this is affecting
`the Japanese government 's energy policy. Following the earthquake disaster. all
`Japanese nuclear plants were shut down. Only selective plants are being permitted
`to run again — a complete phaseout is currently being debated?” A definite policy shift
`would create huge electricity supply shortages and lead to hikes in electricity costs.
`Japan is generally highly dependent on nuciear power, which covered around 30 percent
`of Japan‘s energy mix before the disaster due to the country's lack of natural resources.22
`Although the Japanese industry is eager for nuclear power to avoid higher electricity
`prices. the future energy mix is expected to now shift towards more non-nuclear sources.
`including renewables.23
`
`Germany's government has also implemented a fundamental shift in energy policy by
`shutting down eight of its 17 nuclear power stations and committing to nuclear-free
`energy production by 2022. These decisions were made less than a year after initially
`extending nuclear power station lifetimes?" These nuclear shutdowns will result in
`gaps in energy production based on today's energy mix. Nuclear energy supplied
`almost 18 percent of Germany's electricity demand in 2011.25
`
`On the energy supply side. these developments will accelerate the penetration of renew—
`able energy sources. The demand side will also need to alter its practices as greater
`energy efficiency will help to close the energy supply gap. The lighting market. which con—
`sumes approximately 20 percent of total electricity generation.26 can greatiy contribute
`by providing energy—efficient lighting solutions. such as LEDs. The broader application
`
`Japan Green Building Cmnu‘l [2012}.
`1-1
`15 Ministry of Housing and Urban-Rural Developmenl 01 I110 Poppies Flcpubfic ol China {MOHUHDi {20“- 21.
`16 Internalional Code Council (201 21 ta]; International Code Oeuncll {2012! ID]; US. Green Buifding Council {201 1}.
`1? Urban Ealln outnumber 2011}.
`18 enjghten [20121.
`19 LEDs Magazine {February 2012].
`20 Trip Mainicni EJLuly 2012].
`21 Spiegul Onlinc [July 2012:. sec News [May 20121.
`22 World Nuclear Association [June 21312}.
`23 The Wall Streel JOurnal [March 2012].
`2:1 Sueddeutschepe {June 2011].
`25 Spiegel Oniine [December 2012].
`25 enlighten [2012].
`
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`Lighting the way:
`l|i_-.:lt|\ :l}.nn|ttit' I‘ll\i.1'||i-il|lll'|||
`
`13
`
`Exhibit 4
`
`LED can contribute to reducing energy demand. supporting the feasibility
`of phaseouesicurbing the number of new nuclear power plants needed
`LED impact 2020.
`modal base caae'
`
`2011 reactor units
`
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`SOURCE film's 2012 Global Liahllnu Marital Medal. McKinscy amines and additional scurccslsee toolmm 2?]
`
`of LEDs would decrease energy consumption levels to such a degree that the energy
`output of multiple nuclear reactors could be saved across geographies (Exhibit 4).
`Assuming an average usage pattern per installed light source in any given country
`allows calculation of the energy consumption per technology. The energy efficiency
`of LED exceeds that of other existing lighting technologies. Thus. increasing LED
`penetration reduces total energy demand. in the case of Germany. the transition to
`the 2020 LED base _ as calculated in this report‘s 2012 model — would save energy
`equivalent to the capacity of three nuclear reactors. It is worth noting that this will
`potentially not just benefit nations with concrete phasecut plans. It will also support
`those that plan to add to their nuclear production capacity.
`
`Overall. the trend away from nuclear energy is therefore expected to give a further
`boost to energy-efficient lighting. fueling LED penetration.
`
`27 Proprietary McKinsey Nuclear Model {01 20121.1AEA {20121. Encrdata {201 2‘]; POLES [201 21.
`
`VIZIO Ex. 1136 Page 00013
`
`VIZIO Ex. 1136 Page 00013
`
`

`

`14
`
`2. Update on the global
`lighting market
`
`Last year‘s report highlighted the size of the lighting market and its subsegments. as
`well as its swift growth due to LED penetration. For the 2012 report. McKinsey reviewed
`the forecast of the market size by conducting interviews with a broad range of industry
`insiders and experts as well as updating McKinsey's Global Lighting Market Model.
`McKinsey forecasts slightly faster LED penetration in the mid to long term than was
`anticipated in 2011 due to the more aggressive LED price erosion experienced over the
`last year. The depressed macroeconomic situation worldwide combined with faster LED
`price erosion results in an overall lighting market forecast for 2020 that is slightly lower
`than last year‘s forecast.
`
`2.1 Macroeconomic change affecting all applications28
`
`The three major sectors in lighting are general lighting. automotive lighting, and back—
`lighting. General lighting is the largest. and was again (as last year] classified into
`seven applications for the purposes of this report: residential. office. shop. hospitality.
`industrial, outdoor. and architectural lighting. (Please refer to Appendix A for a detailed
`definition of general lighting applications.)
`
`As in 2011. the scope of McKinsey's market model includes general lighting at the light
`source. ballast. fixture and lighting system control component levels. automotive
`light sources and fixtures. and backlighting at the light source level. Light sources are
`defined as bulbs/tubes in traditional lighting. and as LED modules/light engines and
`LED lamps in LED lighting. (Please refer to Exhibit 25 for a definition of the value chain.)
`As last year. this report does not include other lighting applications. such as signal.
`sign display. or medical lighting. Machine vision lighting. light sources for projectors.
`optical devices. sensors. and other electronic equipment are also not in scope.
`
`The global lighting market is expected to have revenues of over EUR 100 billion in 2020.
`with 5 percent annual growth from 2011 to 2016. and 3 percent growth p.a. from 2016
`to 2020 {Exhibit 5] based on McKinsey's updated 2012 Global Lighting Market Model.
`The overall market size in 2020 declined by around EUR 7 billion from last year‘s fore—
`cast. This is mainly caused by the heavier projected LED price erosion together with
`the slower macroeconomic growth expected compared to last year. As in last year's
`report. market sizes are calculated based on producer prices. If the model's calcula—
`tions were based on retail prices instead. including both the wholesalers and retailer’s
`margins. market sizes would almost double.
`
`General lighting is the largest lighting market. with total market revenues of approximately
`EUR 55 billion in 2011. representing close to 75 percent of the total lighting market. This
`is expected to rise to around EUR 83 billion by 2020 — around 80 percent of the total mar—
`ket. The 2020 market size estimate is EUR 5 billion lower than last year's forecast. While
`LED lighting is anticipated to penetrate faster {mid to long term) due to greater LED price
`erosion. the speedier drop in the price of LED lighting (described in the next section} is
`
`23 Please also refer to section 1.1 {pages 1‘.
`
`to 13: in McKinsey’s 20H 'Ligixting the way" report.
`
`VIZIO Ex. 1136 Page 00014
`
`VIZIO Ex. 1136 Page 00014
`
`

`

`Lighting the way:
`i'lr-i-Ill'ulllilt“.’.iH|-rl||iui1tinizltluliiw
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`15
`
`Exhibit 5
`
`The global lighting market is growing steadily. and is expected to
`exceed a market size of EUR 100 billion in 2020
`
`Global lighting product market trend1 by sector
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`
`likely to slow down overall growth in the general lighting market. This adds to the impact
`oi slower GDP and construction investment growth being forecast.
`
`A major change since last year's edition is that the scope of general lighting also includes
`the market for lighting system control components for the residential sector. This is due
`to an increase in the importance of lighting control systems in the segment.29
`
`Our calculations of market size do not include OLEDs for general lighting, analogous to
`last year. as the extent to which OLEDs will penetrate the general lighting market is still
`unclear. This results from a number of current OLED penetration barriers. First. the price
`of OLEDs is far higher compared to non-organic LEDs. although they are less efficient
`and have a shorter lifetime.“ Another aspect is that LED-based products — the emerging
`LED edge-lit light guides. for instance — can easily deliver the form and performance
`advantages of OLEDs at lower prices.31 While OLEDs are enhancing their features. LEDs
`are also improving. OLEDS are aiming to achieve an efficacy of 140 Im/W in 2020. but
`LED packages are expected to achieve an efficacy of over 220 Im/W.32 There will be no
`reason for OLEDs to more broadly penetrate the general lighting arena anytime soon
`unless they can provide clear benefits versus LEDs.
`
`Chapter 3 will examine each of the applications in g