RealTime IT News

Microsoft Bites Billion Dollar Xbox Bullet

Microsoft  announced on Thursday that it will take a pre-tax charge of between $1.05 and $1.15 billion to extend the warranties on its popular Xbox 360 game consoles due to "unacceptable" levels of a specific hardware failure.

"Any Xbox 360 customer who experiences a general hardware failure indicated by three flashing red lights will now be covered by a three-year warranty from date of purchase," the company said in a statement. The standard one-year warranty remains in effect for all other problems not related to the "three flashing red lights" failures, officials said.

Although there have been complaints about the flashing light failures in online gamer forums for months, many apparently related to heat buildup, Microsoft officials said the problems weren't immediately apparent when the console first shipped, more than a year and a half ago.

"For the first year plus, this problem wasn't visible at all, but in the last couple of months, we've seen significant call volumes [regarding the failures]," Robbie Bach, president of Microsoft's Entertainment and Devices division, said on a conference call with financial analysts.

While declining to characterize the numbers or percentages of failures, Bach said they constitute "a meaningful number." At the same time, however, he also refused to blame any of the company's manufacturing contractors, calling the source of the problem "a design issue," and saying, "It's our responsibility."

Microsoft officials have not disclosed the source of the problems, although many observers believe it's caused by overheating. Bach would only say that the problems have been solved in new consoles.

"We do feel we've made the changes needed to control the problem," Bach said.

Besides repairing or replacing any Xbox 360 console that fails showing the “three flashing red lights” error free of charge, including shipping costs, the company will also reimburse any customer who has paid to repair an Xbox 360 with problems related to error.

The charge will be applied to the fiscal fourth quarter of 2007, which ended June 30.