Contents:

Scope and Methodology Executive Summary Home Control Definition & Overview Industry Description Consumer Adoption Characteristics Strategic Market Analysis Market opportunity for sensors & controllers in home applications Home Control Market Analysis Disadvantages to INSTEON™ technology Regional Adoption Issues Regulatory Market Drivers Ancillary Applications Consumer Electronics Market Analysis Landscaping Market Analysis Medical and Healthcare Market Analysis Utilities Market Analysis Home Security Market Analysis INSTEON™ Technology Review Summary of INSTEON™ Technology Comparison of INSTEON™ with ZigBee and Z-Wave Comparison of INSTEON™ with X-10 and UPB Standards Bodies that Regulate INSTEON™ How a INSTEON™ Network Works INSTEON™ Patent Activity INSTEON™ Demo Review Macroeconomic Factors Analysis Review of the Current Economic Climate Analysis of Regulatory Influences Discussion of OEM Participation and Development Market Forecasts Segmentation by Technology / Protocol in Home Control & Monitoring INSTEON™ INSTEON™ vs Wireless Technologies INSTEON™ vs Powerline Technologies INSTEON™ Segmentation By Home Automation Application Audio / Video Applications Appliance Management Applications Home Security Applications Lighting Control Applications Access Control Applications Landscape & Home Exterior Applications Peace of Mind Applications INSTEON™ Segmentation by Geography - United States - Europe - Asia - ROW LIST OF TABLES Available Market for Sensor & Control Technology in Home Applications Home Control Applications Home Control Value Matrix Consumer Electronics Applications Landscaping Applications Medical and Healthcare Applications Utilities Applications Utilities ZigBee Value Matrix Home Security Applications INSTEON™ Technology INSTEON™ vs. ZigBee and Z-Wave Technology INSTEON™ vs. X-10 and UPB Technology INSTEON™ Industry Group Technical Focus INSTEON™ Network Function INSTEON™ Home Control IC Sales Forecast (2005 - 2011) INSTEON™ Home Control IC Shipment Forecast (2005 - 2011) INSTEON™ Home Control IC ASP Forecast (2005 - 2011) INSTEON™ vs Wireless Technologies Forecast (2005 - 2011) INSTEON™ vs Powerline Technologies Forecast (2005 - 2011) INSTEON™ Audio/Visual IC Shipment Forecast (2005 - 2011) INSTEON™ Appliance Management IC Shipment Forecast (2005 - 2011) INSTEON™ Home Security IC Shipment Forecast (2005 - 2011) INSTEON™ Lighting Control IC Shipment Forecast (2005 - 2011) INSTEON™ Access Control IC Shipment Forecast (2005 - 2011) INSTEON™ Landscape IC Shipment Forecast (2005 - 2011) INSTEON™ Peace of Mind IC Shipment Forecast (2005 - 2011) U.S. INSTEON™ IC Shipment Forecast (2005 - 2011) Europe INSTEON™ IC Shipment Forecast (2005 - 2011) Asia INSTEON™ IC Shipment Forecast (2005 - 2011) ROW INSTEON™ IC Shipment Forecast (2005 - 2011) LIST OF FIGURES Home Sensor Total Available Market, Global (2005 - 2020) Home Sensor Total Available Market, U.S. (2005 - 2020) INSTEON™ Home Control IC Sales Forecast (2005 - 2011) INSTEON™ Home Control IC Shipment Forecast (2005 - 2011) INSTEON™ Home Control IC ASP Forecast (2005 - 2011) INSTEON™ vs Wireless Technologies (2005 - 2011) INSTEON™ vs Powerline Technologies Forecast (2005 - 2011) INSTEON™ Audio/Visual IC Shipment Forecast (2005 - 2011) INSTEON™ Appliance Management IC Shipment Forecast (2005 - 2011) INSTEON™ Home Security IC Shipment Forecast (2005 - 2011) INSTEON™ Lighting Control IC Shipment Forecast (2005 - 2011) INSTEON™ Access Control IC Shipment Forecast (2005 - 2011) INSTEON™ Landscape IC Shipment Forecast (2005 - 2011) INSTEON™ Peace of Mind IC Shipment Forecast (2005 - 2011) U.S. INSTEON™ IC Shipment Forecast (2005 - 2011) Europe INSTEON™ IC Shipment Forecast (2005 - 2011) Asia INSTEON™ IC Shipment Forecast (2005 - 2011) ROW INSTEON™ IC Shipment Forecast (2005 - 2011)

Summary:

Everywhere one looks and reads about cutting-edge technology, wireless devices and their essential infrastructure is apparent in coming and inevitable to boot, and clichés such as ‘the future is now’ are ubiquitous. (So is ‘ubiquitous’, it seems.) Of course the future is now, and very much not yesterday. Today we are, more than ever, setting the stage for tomorrow, in terms of simplifying our lives, liberating precious time from mundane and repetitive tasks via labor-saving devices, and enhancing our overarching human need for communicating with each other, and retaining our social bonds, with more urgency than ever before in history. This, then, is the common denominator, the bottom line, our raison d'être. We have arrived at a juncture in civilization where we have changed the ratio of work vs. play by the use of ever smarter machines: we want control over our personal lives, our preference for work and leisure, our choice of entertainment. We want no strings, no bonds, no wires, unless we choose them ourselves. This evolution has, of course, shaped the development of the tools that enable this penultimate control. We have invented machines ever smaller and ever more powerful, to aid us in this quest. We have produced machines to travel rapidly to other regions and lands and, above all as a gregarious species, peoples. We have produced the means to satisfy our cultural needs, intellectual et inculte, via entertainment devices that we now want to carry with us, pulling the plug as it were, on wired dependence. Once we learned to hold private conversations on the telephone while traversing the public space, and once we gave in to the remote control, the rush to this independence was unstoppable. Enter ubiquitous computing, the next generation of machines that will connect all, not ‘machine to machine’ (whatever that means), but machines that, connected by way of an intelligent architecture of our own making, who will serve us according to our own design, whether at work, at home, or at play. Ubiquity of control and automation is the goal. Home Control Definition & Overview Home Automation & Control today consists predominantly of a series of parallel and independent networks that control lighting, appliances, HVAC (heating, ventilation, and air conditioning), entertainment systems, communication systems, data systems, and security systems. The future aim of OEMs is a system that is controlled by a single network. While this is too costly at this point, it implies interoperability among a range of up-till-now independently developed standards and protocols as well as the ability for interoperability between the dominant technologies installed in homes today: powerline, telephone line, and wireless. Powerline is the predominant player in the home automation market. In some cases, as with a Microsoft research project called Aladdin, it is potentially feasible to integrate the two simultaneously. INSTEON™, SmartLabs’s dual-band (wireless & powerline) approach, is a newly released real-world application that will actually be available to the consumer, as opposed to the myriad of scuttled Microsoft research ventures, While powerline uses the power cable infrastructure that is already installed in the home, it is limited to low speed and low bandwidth. Wireless technologies, in contrast, have the potential to take over control of all home automation systems, meeting all technological requirements quite handily. Still, wireless is more expensive than powerline as a home automation option for most applications. Thus it is the regulatory, economic, and chip technology developments that will enable wireless technologies to compete with powerline options in the Home Automation market. The technologies in play in the Home Automation market of today and tomorrow are INSTEON™, ZigBee/802.15.4, Bluetooth, Z-Wave, Wi-Fi, Ultrawideband, X-10, UPB, and 433MHz short-range proprietary technologies. The manner in which these technologies interplay and the role that each takes in the home are depicted in the figure below. INSTEON™, X-10, and UPB, predominantly take on lighting and appliance control functions but are also found in or applicable to audio/visual, security, landscaping, healthcare, and other applications. Ultrawideband someday may command both high-speed multimedia streaming between SetTop boxes, televisions, and stereos distributed through a home. But UWB also is capable of transmitting both digital video (wireless Firewire) and digital still photos (wireless USB). Bluetooth offers a link to the outside world (Internet) for computers as it is extended to higher data rates and in this sense can compete with Wi-Fi in some cases. The predominantly proprietary 433MHz wireless technology is generally used in home security systems that have in the past also had limited control over lighting systems. As 433MHz devices require an existing X-10 installation to function, there is a clear path to integration potential with INSTEON™. It is truly the OEM who controls the gateway in the homes of tomorrow who will be the ‘Ford’ of this century. Hence it is our contention, and the conclusion of this study, that INSTEON™ will indeed penetrate Home Automation applications and find a strong place in the market. This gateway will be wireless, as well as wired. It will, by necessity, have connectivity to 3G/4G, WiMAX, Ultrawideband, Wi-Fi, Bluetooth, ZigBee, and others. This progression is being driven by companies who need to develop new products, consumers who are really tired of cables and plugs, and most especially by governments who see this convergence as a mechanism for spectrum reform that reduces the allocation, license, and monopoly headaches they have been dealing with, primarily over the last decade. Industry Description In keeping with the trend begun in earnest in the last third of the 19th Century, the advancement of automation has been inexorable, but not since the invention of the combustion engine has such a significant leap forward come into view as the current advancements in wireless technology. Hence, as we contemplate Home Automation today with a view to the future, our daily lives will once again change drastically, and, while not overnight, so much more rapidly than the spread of the automobile. Brought to the public notice not necessarily with a bang, developments by consumer and home automation OEMs have made even the casual observer aware of the size and extent of the impact in the home automation segment. One must consider the powerline control (PLC) option as a method of reducing the maze of wires in a home environment. The war cry of “No New Wires” has been called for many years without apparent mainstream market traction. The primary reason has been unreliability and marketing inadequacies on the part of the surprisingly small companies that dominate the space, X-10 being among the most prominent. INSTEON™, a new dual-band networking technology developed by SmartLabs, stands to revolutionize home automation with a solution that augments the reliability of any wireless network in the home through the addition of powerline control. INSTEON™ takes powerline control one step further by integrating a wireless communication option that can act as a failsafe as well as a means to easily network the two electrical (110V) sides, or phases, of the home. INSTEON™ offers fault-tolerant technology for home control. With no significant technical drawbacks, INSTEON™’s only possible challenge is one of market and partnership execution. As a company, SmartLabs has an overall channel and product strategy that allow them to leverage the online catalog and dealer-direct sales side of their business in order to drive INSTEON™ in the marketplace. The options for automating your home are evident even today are only limited by imagination; we may still be cave dwellers, but our caves today resemble those of prehistoric man only in that they are hollow and have at least one egress. The house of the future imagined ever since the Industrial Revolution and Jules Verne et al is here. You and your house will be communicating wirelessly, via Internet and intranet. Initially, home and building automation innovators set their sights only on improving audio and video experience and access convenience, but soon it became obvious that the unshackling of RF regulations rapidly advanced technological progress in RF R&D. Today it is no longer science fiction to be able to give your house full control over access and security, or monitoring heating and cooling of individual rooms via moisture and noise sensors. And future developments already on the horizon will do much more. We will network and control all our home infrastructure aspects via a single gateway, monitor and secure both the inside and the exterior of house and garden, regulate the delivery of goods and of services, and in addition be able to track our children’s whereabouts, from anywhere, at any time. Down the road, home automation will also lead to a significant change in the architecture of our homes. Just as the introduction of the car into our lives brought the garage into the house, so home automation may create new segments or adjuncts to the future home. The smart refrigerator that monitors contents and can be programmed to shop for us may come built in, with two doors, front and back, the back accessible by delivery personnel via keypad from a new, separate and secure addition to our houses and kitchens, that may look much like a temperature-controlled modern version of the 19th Century pantry. But our ‘servants’ today are our invisible, wirelessly controlled gizmos, along with help from, for example, the friendly Safeway ‘food dude’. And here is the crossroads of merging once again the public and the private sphere that separated so definitively with the advent of the middle class in the 17th century, i.e. when modern times and the industrial revolution changed the socio-economic landscape: it is a given that the implications inherent in today’s innovations in home automation and its inevitable technical advancements will begin to change not only our environment, but our very social structure, blending private and public once again, as we share connectivity with our community into the very center of our family life. An additional possible application related to the refrigerator as well as the hot-water heater and washing machine in your home, is an INSTEON™™-networked sensor in the bottom of each product that will measure moisture content and alert you (either in your home, or by calling your cell phone) when your basement is in danger of flooding. Still, we are as of yet at the beginning of this process, fitting the pieces and options together to create this new world. What we really want is to take home automation for granted, to dispense with unnecessary labor and costs, and all the small concerns of making our home infrastructure run smoothly and efficiently. There is another factor in the equation that must be considered. Communication today is more inclusive of our environment than ever before; in fact, the line between communication per sé and our daily activities and movements is no longer clearly definable, nor is communication solely about direct human action and interaction. We now and increasingly delegate tasks to computers, i.e. machines or robots, no longer only in industry, but in the spaces we frequent day in/day out. And because we are constantly on the move and multi-tasking has become a way of life, communication includes already a sizeable infrastructure where an inexorable transition to wireless is not only inevitable, but indispensable. To effect this change, we must dispense with the most obvious of physical impediments, which, for now, means wires. Wireless is no longer the purview of the enthusiast alone, but it is a concept that is beginning to embed itself in the expectations of the population at large, an attitudinal shift that is well on its way to becoming indigenous. For example, not only do we want to communicate with each other from every corner of the earth, economically both in terms of hardware and service, but we want to have the opportunity to tend to the essential life and comfort-sustaining activities of our daily life as a means to a qualitative life, not as an end in itself. But progress is relative and exceedingly slippery to pin down as a concept. Progress is essentially a neutral term, but it rarely exists without its emotional content, being a glass half empty to one person, and a glass half full to the next. This is also true for the free market economy. As an ideal, it connotes a relative equilibrium between manufacture offerings and consumer demand, in that order. If a product commensurate with our current, contemporary lifestyle is available, it will be purchased by people who lead this kind of life. However, the greatest profit is realized by the company that can service the largest market and also able to combine this with a most desirable product in terms of “must-have” or quality of life goals on the part of the consumer. Exploring this with regard to the above discussion on the pace of the wireless infrastructure evolution, the practicality of electrical wiring as an infrastructure is only now beginning to be seriously questioned by the consumer because it is no longer commensurate with today’s life style. We no longer like to be limited by the length of a cord or cable, or by the need of finding the right one. As a gregarious species, communication is foremost on our list of activities, and comfort a close second. To this end we look to the marketplace for inspiration and answers, and while we tend to be eclectic in this pursuit, we shape our daily life for the most part according to those twin goals. In practical terms it means that the consumer will purchase a Kirby vacuum cleaner because it is powerful and light, but will abandon it to the wireless robot variety, as soon as one can be obtained at a reasonable price. The company or consortium that considers what people want and need and makes this new infrastructure possible, will garner the largest profits. This analysis of INSTEON™ has found the technology and its creator, SmartLabs, to be one of the more closely aligned efforts to this goal of a focus on customer needs. It will take time to build the necessary infrastructure. The U.S. economy is not comparable to centrally managed countries, which means that industry will design and consumers will purchase in their own haphazard way. In a way this wastes time, energy, ideas, and it also dead-ends quite a few products, many of them superior. But this process also provides uncounted opportunities and varieties, which makes this country the cradle of innovation that it is. So this future, while it is inevitable, will be achieved after a number of unpredictable or predictable bumps in the road. But in the end the secret lies in making these opportunities and options available as economically as possible, and capable of seeing the future in panorama vision, i.e. beyond person to person communication to actual control by each of us, via wireless devices, of the infrastructure of our daily environment. Sensors and monitors are central to this evolution, and the components necessary for this goal begin with the wireless options. So what are our options for home automation and that labor- and cost-saving infrastructure? Far from choosing one or the other, all wireless hardware, protocols, and standards are capable of seamlessly blending their individual attributes to fill that service role. ZigBee, the wireless chip technology built on the 802.15.4 standard, had the opportunity, like the Bluetooth, Wi-Fi, etc., to own a very distinct niche in the wireless marketplace: home control and automation. And now INSTEON™ has joined all other wireless options as a potentially significant player in the socio- economic shift from a wired dependency infrastructure to a world where wireless ubiquity is the norm. ZigBee, should it succeed as a standard for monitoring and control products, may challenge INSTEON™ as an option, because when all is said and done, standards open to innovation and collaboration have the edge over proprietary solutions. Bluetooth also will have a place in the line-up, as do members of the 802.11x group. X-10, the workhorse of home automation and control, is a powerline control protocol with an installed base of 7-10 million homes and roughly 1 million in new home installations annually. INSTEON™, being fully backwards compatible with X-10, has a strong advantage in that it can piggyback on the X-10 installed base. Additionally, INSTEON™ is designed with a signal booster in each node. Thus adding INSTEON™ nodes into an X-10 installation increases the stability and robustness of the network. While a number of technologies and protocols applicable to the home control market have a market lead on INSTEON™, the issue of whether Bluetooth component OEMs can survive the current below-$5 chip cost and stave off inevitable competition from UWB or ZigBee, remains. Even at its best, ZigBee today is in the $2-5 range, with UWB even higher as it finally comes to market. At this stage there is no significant competition to INSTEON™’s cost advantage. INSTEON™ today, costs less than $2 at the BOM level. It is necessary to emphasize that, far from being the new X-10, INSTEON™ is the new Dual-Band approach of wireless with integrated powerline. Total cost of ownership in the home is becoming more and more of an issue for homeowners who are relying on the growing equity in their home as a safe(er) means for wealth-building. INSTEON™ is a means to increase the electronic equity in a homeowner’s property. This evolving trend is accentuated by the aging population in the US that is expected to be drawn to products and services which provide increased convenience and enhance and maintain personal autonomy.

Products Mentioned

INSTEON, Z-Wave, ZigBee, IEEE802.15.4, UPB, X-10