Warranty in the IT Industry:

Within these five somewhat arbitrary sectors of the IT industry, there's quite a bit of variance with respect to warranty claims rates and reserve fund-to-claims ratios. Among all 259 IT manufacturers who reported warranty activity during the second quarter, the average claims rate is 2.45% of product sales and the average warranty reserve fund is equal to around 12.5 months' worth of claims. But computer vendors typically experience a higher claims rate, and telecom equipment makers tend to keep a higher level of reserves, as the chart above shows.

The telecom carrier equipment sector includes all the networking gear used by telephone companies, Internet service providers, television and radio broadcasters, cable TV networks, mobile phone service providers, and local-area networks for computers. In this instance, it does not include the televisions themselves, nor does it include the radios, stereos, and other audio/video equipment used to receive programming, which is more properly accounted for as consumer electronics. But it does include mobile phone handsets and the set-top boxes used for cable TV reception. It also includes all the network cards, modems, and computer-fax systems inserted into PCs for data communications purposes.

Semiconductors and printed circuit boards is a somewhat self-explanatory industry segment. However, in this instance it also includes not only the actual wafer production equipment, but also the test equipment and ancillary systems such as those that filter the air and water used during production. As mentioned, some of the medical equipment makers whose pumping and filtering systems purify air and water for pharmaceuticals and lab tests also sell their systems to semiconductor manufacturers. But for now, we'll keep them on the medical equipment list.

Finally, there's the all-encompassing "other" category. This sweeps in all the printer and scanner makers, as well as all the laptop battery makers and the security and access control system manufacturers (but not the firewall vendors, who are in the datacom networking sector). Computer-based gambling systems also are included here. Automated teller machines, currency counting machines, counterfeit detection systems, point-of-sale terminals, and other computer-like money-handling apparatus are included here as well. The list even includes a maker of digital computer screen projectors.

Several manufacturers are blurring the line between office equipment and computer peripherals with all-in-one units that include a laser printer, a fax machine, a copier, and a scanner. Fortunately, all but those sold by Xerox and Pitney Bowes are covered by manufacturer's warranties issued by foreign companies, which are not included here. So we dodged that bullet. Both of those companies are included in the "other" category.

What's Not Here

Excluded in this go-round are all the electrical power equipment manufacturers, who were lumped into the "network equipment" category for the first quarter report delivered in the June 9 issue of Warranty Week. After some subscriber complaints, we've reconsidered and realized that there's a world of difference between steam-powered turbines that generate electricity and TV transmitters that generate RF waves. Electrical power generation equipment will be included in the Sept. 29 report, although it's still an open question what to do with the diesel-powered portable generator manufacturers. Their products don't have wheels so they're not automotive. But several of the most successful diesel engine manufacturers make units for both vehicular and stationary power generation applications.

Still, there is the nagging question of what to do with battery manufacturers. Some batteries are clearly aimed at consumer electronics equipment. They're even sold in shrink-wrap and blister packs. Others belong in automobiles. Then there are the battery backup systems that tried and mostly failed to keep wireless telecom services up and running during the two recent East Coast blackouts. And of course, there are the batteries that power laptop computers, iPods, and PDAs.

We're stumped, and need advice. Do all the AC power equipment vendors and all the DC battery makers belong in the same category? Or should car battery makers be treated as automotive and laptop battery makers counted as computer? For now, we're throwing all the computer and telecom battery makers into the "other" category. Automotive battery makers were counted last week, but clearly there's some overlap.

Key: increases in black,
decreases in red.