But I’ll start with telecom. It’s been an important vertical for us. Historically, around 10% of C&I. We had a really strong year — a really strong year in 2022, with telecom, we started to see that soften up in the back half of this year. We called that earlier this year. So it kind of fell in line with what we saw. But I think we were more hopeful that it would rebound more quickly here in 2024, and right now, all evidence based on kind of — you can look at any of the transcripts for many of the major wireless carriers. We’re a Tier 1 supplier to all of them. They’ve all kind of cut their CapEx guide year-over-year by roughly 10%, call it. So I think that’s kind of a proxy for what we’re seeing to some degree in telecom. But we’ve seen this movie before.
We’ve been serving that market for 40 years. And they tend to cycle on and off of CapEx. Some of it is the pacing of the build-out of the network. Some of it is they’re balancing other capital priorities, sometimes M&A, sometimes other things. So we’ve seen that before. That will come back, absolutely. And we feel like that’s just a cycle we’re going to get through here in 2024. The other one is the rental accounts, the national rental accounts in particular. Again, we’re a major supplier to all of them. And you’ve seen a couple of the rental customers come out, rental accounts come out and say that their CapEx is going to be lower year-over-year. So we’re kind of — we’re kind of working off of that, those types of guidances. And in particular, there’s been a pretty heavy refleeting cycle over the last few years in the categories that we supply, in particular, in Power & Light.
So where you’ve got temporary power or temporary lighting, those are the products we manufacture and put into those channels. They’ve gone through a heavy refi leading cycle. And now they’ve got to wait for the utilization rates to kind of get to where they need them to be before they start kind of purchasing new equipment. So again, we’ve seen that cycle about three times in our ownership and our participation in that market over the last decade plus years. So that’s just cycle. And then the last one is beyond standby. That is an area that’s been very interesting. It’s grown very quickly. We have customers like in channel rock [ph] in there. They’re not the only ones. We’ve got others that we sell a lot of these generators and in particular, on the gas side, where we would sell a typical gas generator for emergency backup, customers are finding that there’s additional utility and value that they can deploy that generator in perhaps a grid support type program, right?
So time of use program or some other kind of demand response type program, and they can help monetize the asset in a way that they couldn’t before. They had to think of it purely as a kind of a — it was really a disaster response type purchase before, kind of an insurance policy. And so not something that would necessarily create a return year after year, right? I mean it obviously would give you a return, if you experience an outage, that’s infrequent use. This is a way now to — as natural gas prices have stayed low, electricity prices continue to rise, that has been a very interesting growth opportunity. I still relatively small in the context of everything we do, but it’s been growing very quickly, and we’ve called it out over the last couple of years.
Underpinned by Generac as an important customer there. But also data centers, these are smaller gas gens, so they’re used more in edge data centers, not necessarily hyperscale. Hyperscale data centers are still going to be using very large diesel gens that are manufactured by our competitors. We’re not in that business today. So we’re really serving more of the edge data center markets or those data center operators that want to use those assets in a monetized fashion. You wouldn’t be able to do that economically with diesel. You can do it economically with gas, but it takes a lot more gens to get to the same level of protection, because the density, the power density of each generator for gas is lower than it is for diesel. That’s just a — that’s a physics thing.
You can’t get around that. But that’s — it’s still a great market opportunity. We just — what we called out this morning in the prepared remarks there, is with a higher interest rate environment, we’re just seeing those projects get pushed out the time lines, right? So we think it’s temporary. We think it will return when interest rates kind of return to a more normal level. Do we know when that is? No. I think you listened to economists and we see a lot of them and hear a lot of them, it’s anywhere between zero rate cuts and 12 this year. I don’t know. Take your — pick your number, but we’re watching that. We’re seeing kind of what goes on in that environment, but we do think that as rates come down, that obviously changes, I think, the — not only the economics around those projects, but shouldn’t bring some of those projects that have been delayed back into the mix.
Operator: One moment for our next question. Our next question comes from Kashy Harrison with Piper Sandler. Your line is open.
Kashy Harrison: Hi. Good morning, all, and thanks for taking the question. So maybe just sticking with C&I since we’re talking about it. Aaron, as you pointed out, you guys have been serving telecom for, I think, you said 40 years and rental companies for a really long time. So how long does it typically take for the spending to recover on average? Is this something where it drops and stays down for a year, two years, three years? Just maybe help us think about that. And then similarly, following up on this topic of interest rates, can you walk us through the level of rates that drove weakness in that segment? Was it when we got the 5% on the benchmark. Was it another level — just trying to think — and just trying to think through if we get to 3%, is that when the segment is back? Is it 4% is at 2%? Just some thought around the level of rates and how it impacts the beyond standby business. Thank you.
Aaron Jagdfeld: Yes. Thanks, Kash. So with respect to the telecon rental cycles, just kind of how we’ve seen that historically, they play out in like four to six quarters generally is kind of how it plays out. There can be unique situation we had, as an example, when consolidation has happened historically in the telecom industry, an acquisition of Sprint by T-Mobile, that kind of thing or merger, those types of situations. Those can be more unique. Those — whenever there’s major acquisitions, that usually creates a pause in CapEx as the carriers do their integration activities, and they try and rationalize what they’ve acquired in terms of the assets and the networks and how they want to deploy that going forward from a strategy standpoint.
But typically, four to six quarters. And similarly, on the rental side, those refleeting cycles can be a year or two, depending on the category, depending on the customer, depending on the market. Sometimes they’re influenced in oil and gas, as oil and gas prices go up, that can mean better utilization of the equipment in certain regions, where they’re used in those applications. And so the timing can vary, but I would say pretty reliably. Historically, we’ve seen four to six quarters. The beyond standby — sorry.
York Ragen: I’m going to say because we sell direct, you tend to see it quickly too. Like do they turn it, they can turn it off fast or if they can turn it on fast.
Aaron Jagdfeld: Really good point. Yes, we tend to see them while their capital spending, their purchase orders can be, as York said, it can be pretty abrupt both on and off. So we watch that very closely. One of the reasons, we’re expanding capacity in C&I, the range of product, we’re aimed at actually is what we would refer to as our midrange product, which really goes after that telecom market and some of that temporary power market for the rental markets as well. It’s kind of the mid-range products. And that’s where we see — we are absolutely the strongest manufacturer there in North America in terms of our share and our aggressive stance with these customers. We have an outsized share with these segments, which is maybe why we’re getting hurt a little bit more than perhaps some of our competitors in some of the — in C&I in 2024.
Some of our competitors are a little more focused on the hyperscale data centers. As I said before, we don’t have products there. So I think some of the way we’re looking at the markets in 2024, maybe differ from some of our competitors as a result. To answer your question on kind of what interest rate level kind of impacts the beyond standby market, we kind of saw projects starting to kind of elongate in the cycle. It’s new to us. So we haven’t been through a rate a higher rate environment there with that product category, so it’s new. So we’ve got a lot of learning cycles there. We’re trying to get under our belt. So I can’t give you an exact rate, because the one thing we do know is that every project pencils out differently in every market.
It really depends on the local utility costs in the market. It depends on the use case of the products in a particular market, the end customer, the project size, there are just a ton of factors. So I would tell you that I don’t know that there’s like a specific interest rate level where we could say, we called it being cooling off and vice versa, a specific interest rate level where we would say, if we get to 3.5% that it will turn back on. I think a lot of that’s just going to depend on economics improving in particular markets, and there’s just a ton of factors that go into each one.
Operator: One moment for our question. Our next question comes from Joseph Osha with Guggenheim. Your line is open.
Joseph Osha: Thanks for taking my question. I have two product questions for you. The first one relates to some of the DC generators that you were talking about as products to be coupled with storage. I’m curious if we can get an update there. And second, in terms of the storage strategy, given the time line you’re talking about in the micros, I know you still have the pipe architecture out there. What can you tell us in particular about how you — what your outlook is for AC couple storage and whether we might see you selling storage alongside other people’s inverters at some point during 2024 as we wait for the updated silicon product to come? Thank you.
Aaron Jagdfeld: Yes. Thanks, Joe. Good questions, all of those. I think — so on the DC generator question, that was a very small product that we launched a couple of years ago. We didn’t see a ton of receptivity to it. It really was aimed at people who truly wanted to be unplugged from the grid, be isolated, independent from the grid. And it’s a small host of customers. What we actually think is probably a better opportunity going forward is to take our existing AC product, AC generator products in an AC-coupled environment and allow the generator to act as a as a battery charger through an AC coupling as opposed to a DC. So, it’s just — it’s a little bit — it’s not quite as efficient, but it allows us to leverage the AC generator platform, which in terms of our cost structure, is, frankly, just — it’s just better because we just — we have scale there, we can offer better value to customers, even though we might be taking away a little bit of value in terms of the AC generators are a little bit louder.
