Microsoft To Take $1-Billion Charge Over Xbox 360 - InformationWeek
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7/5/2007
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Microsoft To Take $1-Billion Charge Over Xbox 360

Microsoft is extending warranty protection on its Xbox 360 games console to cover a rash of failures and will take a charge against pre-tax earnings of between $1.05 billion and $1.15 billion.

Microsoft said Thursday that it is extending warranty protection on its Xbox 360 video game system to cover an "unacceptable" number of repairs that the units have required.

The company said it would take a financial charge against pre-tax earnings of between $1.05 billion and $1.15 billion in the quarter ending June 30 to account for the cost of the program.

Microsoft said that Xbox users who experience a general hardware failure -- indicated by three flashing red lights -- will be protected by a new, three year warranty program effective from the time of purchase.

Under the plan, defective units will be repaired or replaced free of charge, including shipping costs.

"As a result of what Microsoft views as an unacceptable number of repairs to Xbox 360 consoles, the company conducted extensive investigations into potential sources of general hardware failures," Microsoft said in a statement.

Microsoft said it has made improvements to new Xbox 360 units in an effort to reduce the number of defective units shipping to consumers. The company did not elaborate on the nature of the defects, or indicate how many customers experienced the problems.

"This problem has caused frustration for some of our customers and for that, we sincerely apologize," said Robbie Bach, president of Microsoft's Entertainment & Devices division, in a statement.

The company said that customers who have previously paid for Xbox 360 repairs as a result of a general hardware failure would be reimbursed retroactively. Microsoft said all other existing Xbox 360 warranty programs would remain in place. On a conference call with financial analysts Thursday, Microsoft officials declined to say how many Xbox 360 units are likely affected by the flaw. The executives also did not specify the nature of the glitch. On the call, Bach said only that the defect is "a design issue."

The Xbox 360 has been on the market for about 18 months. Bach said the problem was not evident through the first year of sales, implying that the trouble may be a wear and tear issue involving certain components. "Quite frankly, we did not do a good enough job" testing the product, Bach said.

Also on the conference call, Microsoft chief financial officer Chris Liddell revealed that the company now expects Xbox 360 shipments through the end of the fiscal year ended June 30, 2007 to total 11.6 million, down from an earlier estimate of 12 million.

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