The measured seasonal performance of a 5 ton (17.6 kW) single-speed air conditioner (SSAC) installed in a 1076 ft2 (100m2) residence in Dhahran, Saudi Arabia, is compared with the simulated performance of a 4 ton (14.1 kW) inverter-driven variable-speed system (VSAC) from energy conservation standpoint. The simulated SSAC annual consumption is 20,150 kWh (within 5% of that measured) whereas the simulated VSAC requirement under the same operating conditions is only 15,250 kWh, providing an energy savings of about 24%. Model results also indicate that the VSAC can satisfy the building cook ing load 100% of the time. Annual operational hours for the SSAC and VSAC were found to be 3195 and 6400, respectively. The VSAC’s seasonal steady-state and cyclic coefficient of performance (COP) were estimated at 2.48 and 2.40. Computations show the VSAC will spend 22% of total hours in the low speed mode, thus seriously reducing the energy-savings benefit due to high (11%) cyclic losses. Net annual cyclic losses for the SSAC and VSAC were computed as 12% and 3%, respectively. The payback period for the additional 20% to 25% of the analyzed VSAC over the SSAC is three to four years at current local energy costs of $O.05/kWh. VSAC merits and problem areas that need to be addressed to improve system performance and reliability are also discussed.