UPS service revenues can be viewed in terms of concurrent vs. non-concurrent sales. Concurrent services refer to those that accompany the purchase of a new UPS unit, including installation, commissioning, site assessments and factory warranty extensions.
“Some of the slow growth in the UPS service market can be understood by looking at concurrent services,” said Liz Cruz, senior analyst, data center and critical infrastructure, according to a new report by IMS Research.
“In the quarterly tracker on the UPS hardware market, 2012 was found to be flat to slightly down compared to 2011; this would have a negative effect on the concurrent services that would normally accompany a sale of UPS. However, concurrent services are estimated to account for less than 20 percent of all service revenues, so there is definitely more to the story.”
Non-concurrent services, on the other hand, refer to those that apply to an existing UPS installed in the field. These services include maintenance contracts, time and materials, and battery replacements. These maintenance contracts account for, by far, the largest share of all UPS service revenues.
IMS Research believes that service-contract attach rates have not declined but that instead, the installed base of UPS to which contracts can be attached is not growing at the pace seen prior to the recession. In 2009, UPS hardware sales fell by nearly 20 percent, and despite a stronger 2010 and 2011, UPS revenues have still not returned to pre-recessionary levels.
“The continuation of sluggish UPS sales indicates a limited opportunity for service-contract attachments,” Cruz explained. “A typical UPS is active in the field for anywhere between eight to 15 years, so with four years of slow sales, the installed base is becoming stagnant.”
So, while first-quarter sales of UPS service are up slightly, it is unclear if this will go on through 2013. UPS hardware sales have been slowing since the fourth quarter of 2011, which will continue to have negative effects on service revenues.
“Despite sluggish UPS hardware sales, UPS service revenues will likely experience greater growth as new service options are offered to increase the performance, reliability, and lifespan of UPS in the field,” Cruz said.