Over the past few years, every once in a while, a set of warranty expense numbers comes in that makes us wonder if there's been a typographical error in a company's annual report. Suddenly, there's a billion-dollar warranty expense and there's no explanation at all anywhere in the document.
Other times, a major safety recall or some other big event makes the news, and inevitably it gets reduced into a major escalation in a company's warranty expenses. For these, we don't need any additional explanations, but we never do find out exactly how much it costs.
Every cloud has a silver lining, the saying goes. And as awful as the pandemic and the lockdowns have been for the past two years in terms of both health and wealth, sales of both smartphones and protection plans have apparently accelerated over that period. People trapped in their homes, worried about their health, and fearful for their very lives, are apparently more likely to appreciate the peace of mind that protection plans offer, not to mention the relief from boredom a new smartphone can bring them.
Apple Inc. follows a fiscal year that ends in September of each year, which is then followed by an annual report that typically is issued at the end of October. So that's why this edition of Warranty Week -- the first newsletter of November 2021, as well as the first of the month in past years -- is always about Apple's hot-off-the-presses product warranty and service contract metrics. And this year they tell a story about how a company can successfully turn the expenses of warranties into a profitable aftermarket service.
The news broke yesterday that Mize Inc., the warranty management software firm founded by Ashok Kartham, is merging with a Swedish company called Syncron AB that specializes in aftermarket and service parts management software. Both companies are privately-held, so there were no details about the value of the transaction or the ownership structure following its conclusion.
Kartham founded Mize in 2012, taking the name from the phrase "Mobilize to Monetize." It was his second go-round at entrepreneurship, having founded the warranty management software industry when he launched 4C Solutions Inc. way back in 1995, when everybody else was using spreadsheets. Ten years ago, after building up 4CS and the warranty management software category, he sold the company to PTC, and moved to Florida, where he decidedly refused to sail off into the sunset.
It's almost a sign of maturity. When you launch a new product line in a young industry, one way to impress your customers is to issue extra-long warranties and then fund them generously during the startup phase. And then, as you reach your cruising altitude, you can readjust accruals to reflect actual spending.
In the solar equipment industry, however, what's happening now is that prices are dropping, cutting into sales revenue, and some of the weaker companies are going out of business. Meanwhile, even the startups are getting old enough to see some serious warranty claims build up, and in some cases even exceeding the amounts they've been setting aside in accruals.
In a few weeks we'll be marking a very important anniversary in the service contract industry. Just as the holiday shopping season of 2006 was getting under way, a major consumer product ratings publisher told shoppers that extended warranties were a waste of money. On Tuesday morning, November 14, 2006, the USA Today newspaper carried on the back page of the "Money" section (page 10B), the following full-page ad placed by Consumer Reports magazine:
Reaction was swift. Some said both the frequency of breakdowns and the average cost of repair was higher than Consumer Reports was calculating, making service contracts a better value than was admitted. Others said it was simply a matter of price, in that nobody would deny the value of a service contract priced at 0% of the product's price (in other words, free).