May 1, 2007
sponsored by Tavant
ISSN 1550-9214         

Consumer Electronics Warranties:

While most of the brands are imports, there is a short list of American CE manufacturers. But while the Japanese brands have relatively low warranty expenses, the American brands pay claims at rates more like those seen in the computer and automotive businesses.

Nestled into the "other" category in the April 11 pie charts were all sorts of warranty providers that didn't quite fit into one of the 13 listed industries. Among them were manufacturers of sports equipment, security systems, camping gear, and oh yeah, consumer electronics.

How can something as important as consumer electronics get stuck into the "other" category? Sadly, the problem is that so few of the products in the $155 billion or so industry are manufactured by American companies. And since only U.S.-based companies have to report their warranty expenditures to the U.S. Securities and Exchange Commission, there is a gaping hole in the statistics.

Today we hope to begin the process of filling that hole. It turns out that a handful of the best-known Japanese brands have been kind enough to publish some occasional statistics about their warranty expenditures, so we can put together a rough estimate of the whole CE industry's warranty claims.

Japanese Warranty Claims

In Figure 1 below, we've gathered up some warranty claims rates for Sony Corp., Canon Inc., Matsushita Electric Industrial Co. Ltd., and Hitachi Ltd. for the years 2003 to 2006. Note that three of the companies publish only annual statistics, while the fourth publishes its stats twice a year. So although the horizontal scale is quarterly, in most cases the data is simply repeated from one quarter to the next. That's why the curves are so flat.

Also, three of the companies end their fiscal years on March 31, which is why there's no data for them in the latter part of 2006. We'll be waiting until at least the summer before they release their latest annual reports, so this is all there is. Note also that all four companies are using Japanese accounting standards and use the yen as their currency, so comparisons with American companies using dollars as their currency would be difficult. One can never be sure that the definition of a warranty expense remains the same across borders.

Still, what we're expressing here are the percentages of product sales that each company spends on warranty. It doesn't really matter if it's denominated in yen, dollars, or euros, as long as it's the same currency used for both sales and warranty claims. And each company reports currency fluctuations as a separate item, so it doesn't matter if the yen is rising or falling at any particular time. What matters is the ratio between sales and claims, in which the currency cancels itself out.

In the chart below, what becomes immediately apparent is that these four consumer electronics powerhouses have been spending somewhere between 0.2% and 0.8% of their product sales on warranty claims over the past four years. Since we've subtracted out all their finance revenue and service revenue as well as all their movie and software revenue, what's left is only each company's worldwide product sales.


Figure 1
Four Japanese CE Manufacturers:
Warranty Claims Rates, 2003 to 2006
(in % of Product Sales)

Japanese CE Mfg. Warranty Claims


These percentages are quite low compared to many of the American companies in the CE business. Assuming that the entire industry is somewhere between the low end of Canon and the high end of Sony, then that $155 billion U.S. sales figure for 2007 (source: Consumer Electronics Association) implies somewhere between $375 million and $1.3 billion in annual warranty claims. That would equate to roughly 1.3% to 4.6% of the known warranty claims paid by American manufacturers.

In other words, product warranty isn't a very big story for the CE industry. It's a much bigger story for American retailers who sell extended warranties, of course. Warranty Week estimates that CE extended warranties represent a $2.6 billion annual market, which is roughly 16% of the entire service contract pie. That's not as big as the slices for auto or PC extended warranties, but it's a significant source of both revenue and profits for the retailers who sell them.

In addition, it also means that extended warranty premiums paid by CE buyers outstrip product warranty claims paid by CE manufacturers by at least a two-to-one ratio, given that the highest estimate we can imagine for CE product warranty claims is $1.3 billion per year. The opposite is true for autos and PCs, where the manufacturers pay out in claims roughly twice what consumers pay in extended warranty premiums per year.

American Consumer Electronics

There are of course also some American CE manufacturers, but many of them are primarily engaged in other lines of business such as computers, auto and telecom equipment that are known for their relatively high claims rates. For instance, Apple makes iPods and Delphi makes satellite radio receivers, so both qualify as CE manufacturers. But nobody would think of them as anything other than computer and automotive manufacturers, and indeed we're counting all their warranty expenditures in other categories.

The list of American companies primarily engaged in CE manufacturing is actually quite short. We know of only 17 U.S.-based companies whose primary product line is CE. Most are manufacturing speakers for homes or automobiles, and a few are making musical instruments, jukeboxes, amplifiers, two-way radios, or navigational equipment.

Microsoft makes game consoles, and recently their Xbox warranties grew longer and more costly. But the company doesn't believe in reporting their warranty expenditures to the government (or to their investors), so we don't really know how costly those warranties are. The most you'll ever get out of them is an occasional mention of their warranty reserve balance (which, at $10 million, is not insignificant).

Then there are a few companies making mixers and amplifiers for DJs and recording studios, which admittedly stretches the meaning of the word consumer. And then there are a few companies making pianos and orchestral instruments, which stretches the meaning of the word electronics. But since most of the core TV and radio business is manufactured offshore, that's all that's left.

Usually, we reach the conclusion that their numbers are too few and their warranty expenditures are too small to deserve their own category. And so we stick them into the "other" category with the folks who make guns, golf clubs, watches, and camping gear. But just this once, we thought we'd provide some detail.

Six Snapshots

What follows is a series of snapshots detailing the warranty claims and accrual rates of six of the 17 American CE companies which report their warranty expenditures to the SEC. The largest of them is Harman International Industries Inc., which manufactures speakers under the JBL brand as well as other audio gear under the Harman Kardon and Infinity brand names.


Figure 2
Harman International Industries Inc.
Warranty Claims & Accruals, 2003 to 2006
(in $m and % of Product Sales)

Harman International


Harman International exhibits a somewhat unpredictable pattern of claims and accruals. Claims per quarter have ranged from a low of $1.4 million in the first quarter of 2004 to a high of $17.8 million in the second quarter of 2006. As a percentage of sales, the company's claims rate has swung from 0.6% to 1.6%. Accruals have exceeded claims for 15 of the past 16 quarters, and have ranged as high as 1.9% and as low as 0.8% of sales.

None of these CE manufacturers exhibited anything approaching a cyclical or seasonal pattern for their claims or accruals. Intuitively, one would think that the fourth quarter would see a surge in sales and the first quarter would see a surge in post-holiday claims. But it's just not there to be found.

Navigational Devices

Garmin Ltd. manufactures navigational equipment for both the aerospace and consumer markets. Its bestselling product line consists of Global Positioning System receivers that initially helped guide military personnel in the field but which lately have been adapted by millions of car-bound consumers who refuse to pull over and ask for directions.


Figure 3
Garmin Ltd.
Warranty Claims & Accruals, 2003 to 2006
(in $m and % of Product Sales)

Garmin


Garmin is very proud of its after-sale commitment to service, and it shows in its warranty expenditures. While the Japanese CE manufacturers have managed to keep their claims rates well below 1%, Garmin has attained that level only once in the past 16 quarters. High levels of customer service create additional costs.

As sales continue to grow, so do warranty claims. In 2006, sales were up 73% but warranty claims were up 119%. And it shows in the claims rate depicted in Figure 3. At first glance, Garmin looks more like a computer company than a CE company -- as if those little GPS receivers really were handheld computers.

Indeed, there does seem to be a sharp dividing line between traditional CE and computer-like CE. When your CD player or pocket radio breaks, you throw it away and get a new one. But when your iPod or GPS receiver breaks, you seek out a repair. We suspect that's why Sony is at the top of the four companies in Figure 1: it has a significant computer business to contend with, and computers attract warranty claims at rates even higher than automobiles.

Digital Projectors

Speaking of computers, InFocus Corp. is one of those companies that could fit within either the computer peripheral business or the CE industry. InFocus makes a wide array of projectors for both the office and school markets as well as home entertainment applications. What made us put them into the consumer category was their claim of having sold more than a million projectors, and being the first to ship a digital HDTV projector for the home. That sounds like a home entertainment company, not an office equipment manufacturer.


Figure 4
InFocus Corp.
Warranty Claims & Accruals, 2003 to 2006
(in $m and % of Product Sales)

InFocus


InFocus has a more predictable warranty spending pattern, but it's also now headed for the high side in terms of warranty claims rates. Though the peak rate occurred in early 2006 during a product recall, a 4% year-end claims rate is nothing to boast about either. Then again, the company's claims rate has fallen below 3% in only three of the last 16 quarters.

Radio Check

Cobra Electronics makes radar detectors, Citizen's Band radios, marine radios, and lately, a new family of GPS receivers. Over the past four years, its warranty position has continuously improved, falling from the 5% range in early 2003 to less than half that rate of spending now.


Figure 5
Cobra Electronics Corp.
Warranty Claims & Accruals, 2003 to 2006
(in $m and % of Product Sales)

Cobra


Cobra Electronics also began 2003 with a wide divergence between its claims and accrual rates, and unlike Harman or Garmin, it was with accruals significantly below claims. As a result, its warranty reserves dropped below the $1 million level once in 2003 and once in 2004. However, claims and accruals are closer now, and the reserve balance is now approaching $2 million, although that's a pretty thin cushion with claims now arriving at a rate of $410,000 per month.

Turn Up The Volume

Loud Technologies has one of those perfect corporate names that clearly describes the product line. Best known for professional audio brands such as Alvarez, Ampeg, and Crate, the company manufactures produces a wide range of digital recording products, loudspeakers, guitars, amplifiers, commercial audio systems, and orchestral string instruments. What would be even more perfect is if the latter product line could somehow be reorganized into the Quiet Division.


Figure 6
Loud Technologies Inc.
Warranty Claims & Accruals, 2003 to 2006
(in $m and % of Product Sales)

Loud Technologies


Its warranty expenditures are not loud at all, however. Claims and accruals peaked at 2.7% in early 2004, and have been on a downward slope ever since. In fact, while sales were up 5% last year, claims paid were down 4%. But claims as a percent of sales remains stubbornly close to the 1.2% level.

Beautiful Music

Henry Engelhard Steinway began making pianos more than 150 years ago in New York City. Steinway & Sons still has a piano factory across the river in the boro of Queens, and today that company is owned by a holding company called Steinway Musical Instruments Inc. But the parent company has also acquired a wide array of musical instrument companies and brand names that could fill virtually every seat in the orchestra pit.

Figure 7
Steinway Musical Instruments Inc.
Warranty Claims & Accruals, 2003 to 2006
(in $m and % of Product Sales)

Steinway


Its warranty experience has been almost Japanese-like over the past four years, leading us to wonder if perhaps there's a fundamental difference between acoustic and electric instruments. Perhaps there is a heretofore unknown relationship between volume and warranty claims? In fact, let us go a step further and blame the recent rise in automotive warranty claims on the higher wattage of today's car audio systems, and how they shake and rattle the chassis when a good song comes on the radio.

Keep in mind, however, that this is a very small slice of the entire consumer electronics industry. The 17 U.S.-based companies we're placing into the CE-only category have total annual CE sales of about $11 billion, and that's out of a total U.S. market of $155 billion. So the real story of CE warranties lies with the importers who report little if anything about their warranty expenditures.


Back to Part Four   Go to Part Six

Tavant

 

This Week’s Warranty Week Headlines

Six Sigma projects improve quality, reduce warranty costs and increase customer satisfaction.
Disclosures magazine, May 1, 2007
Anyware Computer Accessories lengthens warranty on TP-Link networking gear to three years.
Computerworld Australia, May 1, 2007
Ricoh offers two-year on-site warranties on new gel-based color printers.
IT Week, May 1, 2007
New bathrooms at Tallil Military Base in Iraq were failing even during the warranty period.
Chartered Institute of Building, May 1, 2007
Circuit City increases frequency of extended warranty pricing reviews from quarterly to monthly.
Dealerscope, May 1, 2007
 

More Warranty Headlines below



Mize Warranty Connect

 

Warranty Headlines (cont’d)

Netgear ProSafe networking solutions now carry a lifetime hardware warranty.
Press Release, May 1, 2007
Colorado lobbyists accused of making false claims about a tax hike to oppose home warranty bill.
Denver Post, May 1, 2007
Reuters to acquire ClearForest Ltd., makers of text analytics software.
Press Release, April 30, 2007
All Subaru Tribeca 4x4s sold in UK from May to July to carry promotional five-year warranty.
What Car? April 30, 2007
Apple Inc. says some MacBook batteries may have performance problems and need replacing.
Reuters, April 30, 2007
 

More Warranty Headlines below



PCMI - Your technology partner

 

Warranty Headlines (cont’d)

IBM business partners say lack of international warranties impedes their global growth.
CRN, April 30, 2007
MyThings Web site records serial numbers and purchase dates, smoothing warranty claims.
New York Times, April 30, 2007
New York's MTA won't fix some of its own failure-prone elevators for fear of voiding warranties.
New York Sun, April 30, 2007
All Mazdas sold by Towell Auto Centre in Oman this summer get promotional five-year warranty.
Press Release, April 29, 2007
Homebuilder sues RipOffReport and Google for posting negative comments about his business.
Newark Star-Ledger, April 27, 2007
 

More Warranty Headlines below



After Warranty Analytics

 

Warranty Headlines (cont’d)

Tidewater Builders Association's home warranties have loss ratio of 5%, vs. 40% for competitor.
Hampton Roads Virginian-Pilot, April 29, 2007
Mustang Shelby Super Snake engine can be tuned up to 725 horsepower, but that voids the warranty.
Motor Trend, April 27, 2007
JP Morgan analyst sees lower warranty costs at Ford North America during first quarter.
Reuters, April 26, 2007
Monaco Coach says quality improvements helped it cut warranty expense in the first quarter.
Press Release, April 26, 2007
Microsoft reports increased Xbox 360 console warranty expenses; division's losses continue.
Ars Technica, April 26, 2007
 

More Warranty Headlines below



Sign up for a free subscription to Warranty Week:
     subscribe     change of address     unsubscribe


 

Warranty Headlines (cont’d)

BorgWarner profit falls 5% after first quarter warranty charge.
Associated Press, April 26, 2007
Fujitsu Siemens Computers opens new call center in the UAE.
Press Release, April 26, 2007
New Staten Island Ferry boats have generator and cooling system problems, but they're covered under warranty.
WABC-TV New York, April 26, 2007
Jim Moran, automotive pioneer and founder of JM Family Enterprises, dies at age 88.
Press Release, April 24, 2007
Lennox International reports lower profits, higher parts costs, increased warranty costs.
Press Release, April 24, 2007
 

More Warranty Headlines below



Entigo

 

Warranty Headlines (cont’d)

Asus adds third year to notebook warranties in Singapore.
Hardware Zone, April 24, 2007
Cell-phone lemon law sought by Illinois legislator who replaced handset three times.
Chicago Tribune, April 23, 2007
Assurant pays wrong service provider and consumer pays the right one for refrigerator.
KUTV Salt Lake City, April 23, 2007
Intel denies processors secretly record overclocking attempts, which voids its warranty.
Tech.co.uk, April 23, 2007
QAD Enterprise Applications 2007 includes warranty tracking in service and support module.
Press Release, April 23, 2007
The Warranty Group completes relocation of its headquarters to Chicago's financial district.
Press Release, April 23, 2007 (PDF file)
General Motors South Africa notices a pattern in shattered Opel Corsa Lite back windows.
Motoring & Independent Online, April 23, 2007
MTU Detroit Diesel Australia to give MBE 4000 and Series 60 engine buyers a five-year warranty.
Supply Chain Review, April 23, 2007
Business World survey ranks Tavant Technologies 17th best place to work in India.
Press Release, April 22, 2007
Former used car dealer Sam Irvin Jr. pleads not guilty to charges of extended warranty fraud.
Dayton Daily News, April 20, 2007
Mahindra & Mahindra to sell SUVs in U.S. backed by 4-yr./60,000-mile warranties.
Associated Press, April 19, 2007
GM's longer warranties get positive reviews from AutoPacific brand study's panelists.
Press Release, April 19, 2007
Toyota lengthens hybrid battery's warranty to 8 yrs./160,000 km. to spur sales in South Korea.
Yonhap News, April 19, 2007
ServicePower’s Field Service Solutions Division to provide warranty claim processing to Clarion Corp.
Press Release, April 19, 2007
Links Real Estate to offer GAP Home Warranty Services in UAE.
Press Release, April 19, 2007
Ford's quality ranks with Toyota and Nissan in Global Quality Research System report.
Press Release, April 18, 2007
NPD Group publishes "Services: The Consumer Perspective on Warranties, Installations, and Tech Support."
Press Release, April 17, 2007
SAS Institute gives its Enterprise Intelligence Award to Whirlpool at the SAS Global Forum.
Press Release, April 17, 2007
Tableau Software updates data analysis software to provide drag and drop dashboard creation.
Press Release, April 17, 2007
Partsearch Technologies to provide service parts solutions to the National Service Alliance.
This Week in Consumer Electronics, April 17, 2007
Tata Motors is developing a "People's Car" it aims to sell for about $2,500 in developing markets.
Forbes, April 16, 2007
Oracle's JD Edwards World A9.1 includes a new Service and Warranty Management module.
Press Release, April 16, 2007
Blue Raven Technology debuts new line of iPod customer-self-replacement battery kits.
Press Release, April 16, 2007
Chrysler dealers say customers wonder if their cars will still be covered by warranties if company is sold.
Associated Press, April 13, 2007
Circuit City reworks extended service plan terms to enable faster renegotiation of prices.
This Week in Consumer Electronics, April 11, 2007
Dell discontinues Axim handheld; warranty support to continue.
Direct 2 Dell, April 11, 2007
Sony discontinues the 20GB PlayStation 3; warranty support to continue.
Daily Tech, April 11, 2007
PC-Doctor Inc. to sell system-health software through system builders, VARs and others.
Press Release, April 11, 2007
"Will It Blend?" pranksters try to return a video camera they put through a blender.
Blendtec Blog, April 11, 2007
Mitsubishi Caterpillar Forklift America rolls out 4CS iWarranty software suite to dealers and customers.
Press Release, April 10, 2007
LEDtronics announces T3¼ (9mm) single-contact screw-in LED bulbs with three-year warranties.
Press Release, April 10, 2007
Corrigo upgrades Web-based work order software to display warranty info on products being serviced.
Press Release, April 10, 2007
Dell to replace 17" Inspiron screens that develop a vertical line within 3 years of purchase.
Direct 2 Dell, April 9, 2007
Best Buy vs. Circuit City
Associated Press, April 6, 2007
Costco vs. Sam’s Club
Consumer Reports, issue dated May 2007
Technical troubles deep six sonar system used to defend Canada's coasts.
Canadian Press, April 6, 2007
Circuit City's extended warranty sales drop to 2.9% of revenue in the quarter ended Feb. 28.
Press Release, April 4, 2007
Solectron Global Services opens 500,000 square foott facility in Louisville, the company's largest.
Press Release, April 4, 2007
Extended warranty, GAP insurance, and high interest rate turn £7,000 car into a £21,500 purchase.
This Is Money, April 6, 2007
Cisco's Smart Care Service makes service contracts available to small and medium-sized businesses.
Press Release, April 5, 2007
New Zealand researcher finds a cluster bomb dud in Lebanon with a warranty that expired in 1974.
Scoop, April 4, 2007
Microsoft will now pay round trip shipping charges for all Xbox warranty repairs.
Press Release, April 3, 2007
Dell opens new spare parts and logistics center in Dubai.
AME Info, April 3, 2007
Kia Motors (UK) Ltd. equips Carens with a five-year unlimited mileage warranty.
Press Release, April 3, 2007
FieldTurf Tarkett passes $5 million milestone in prepaid warranty insurance premiums.
Press Release, April 3, 2007
D-Link offers 11-year warranty on its new Wi-Fi product line.
IT Week, April 2, 2007
DaimlerChrysler to pay $1.2 million to settle Mercedes emission-related defect lawsuit
Associated Press, April 2, 2007
 

More Warranty Headlines