Warranty Week has analysed claims and accruals from six companies in its latest report, of which two – Apple and Cisco – are interesting to readers of Display Monitor.
Apple’s warranty claims have fallen to sub-2%, while accruals are once again over 3%. Both are calculated by dividing the relevant warranty expense by the product sales total. However, there is a time lag on the claims rate (as last year’s product sales are being fixed with money) from the current year). The metric is also susceptible to distortion if sales are rising or falling rapidly.
In its fiscal quarter ending on 27th December, Apple’s products sales were up 26%. Because of this, even though claims cost fell only slightly (from $1.06 billion to $1.04 billion), claims rate fell from 2% at the end of 2013 to 1.6%.
On the other hand, accrual rates are set by companies themselves. Accruals were high in 2013 because Apple believed that higher warranty costs were coming; they peaked at 3.3% in mid-2013, but have now fallen to half that. Still, Apple chose to keep its accruals over 3% in the financial year ending last September and its most recent quarter (ending in December). Given how high sales have been, there are huge amounts of money being set aside – over $2 billion in the most recent quarter (more than GM, Ford and HP combined).
In contrast, Cisco chose to cut its accrual rate to 1.5% in its financial quarter ending in October 2014. This is the lowest Cisco’s accruals have been since mid-2011, and a full percentage point below accruals in October ’13.
The fall in Cisco’s accruals follows a decline in claims – now back to 2012 levels. Cisco noted a decline in warranty costs in its latest financial results, but did not give a reason.