Microsoft's growing troubles with the Xbox 360 video game console appear to be catching up to the company. Sales of the gaming machine plunged 60% in the fiscal fourth quarter, Microsoft disclosed Thursday.

In its earnings statement for the quarter, Microsoft said it shipped 700,000 Xbox 360 units during the period, compared to 1.8 million in the fiscal fourth quarter of 2006 -- a fall off of 61%.

Microsoft's Xbox operations are housed within the company's Entertainment and Devices Division. The group saw fourth quarter revenue drop 10% year-over-year to $1.16 billion on an operating loss of $1.20 billion. The group lost $423 million the previous year.

Microsoft blamed the 183% increase in the EDD operating loss on a $1.06 billion charge against earnings that the company incurred to cover the cost of extending the warranty period for the Xbox 360 to three years. The move came following Microsoft's recent admission that the gaming system was suffering from an "unacceptable" number of general hardware failures. Microsoft has also been hit with two class action lawsuits in the past two weeks claiming that a design flaw in the Xbox 360 causes the system to irreparably scratch game discs. Microsoft has denied the claim.

Earlier this week, Microsoft announced that Xbox chief Peter Moore was leaving the company "for personal reasons." It was later disclosed that he had jumped ship to video game publisher Electronic Arts.

In the meantime, rivals Sony and Nintendo have been stepping up competitive efforts. Sony recently announced a $100 price cut on certain PlayStation 3 units while Nintendo continues to enjoy robust sales of its new Wii system.

Microsoft introduced the Xbox 360 in November 2005. It has since shipped 11.6 million of the consoles. The company is doubtless looking forward to the holiday 2007 season and hoping that new game releases like Halo 3 revive the Xbox 360's flagging fortunes. Microsoft on Thursday said overall profits in the fourth quarter increased 7% to $3 billion, while revenue increased 13% to $13.4 billion.