Xbox 360 Problems To Cost Microsoft $1.3 Billion


Microsoft has finally admitted that there are major problems with the Xbox 360 games console. Now they are setting aside A$1.3 billion to fix the problem. During the past 3 months, Smarthouse has consistently reported problems with the Microsoft console with retailers claiming that up to 30% of consoles have had to be returned in Australia.

The company will “take a US$1.05 billion to $1.15 billion pre tax charge to earnings for the fourth quarter that ended June 30 for anticipated costs under its current and enhanced Xbox 360 policies,” it said.

In a conference call with analysts, Microsoft Chief Financial Officer Chris Liddell said that the charge will have no impact on the company’s overall guidance for fiscal 2008. The entertainment and devices unit president, Robbie Bach, added that the company still Microsoft expects the Xbox business to become profitable sometime in fiscal 2008, thanks to factors such as the release of the highly anticipated “Halo 3” in September.

When SmartHouse first exposed the problem, Microsoft PR company, Pulse Communications, said that it would take two weeks to get a response from Microsoft. Microsoft promised to come back on the issue but failed to. See original story at.

Microsoft specifically cited the “three flashing red lights” error message encountered by Xbox 360 users experiencing hardware failures.

The company said that it will repair or replace devices that experience the “Red Ring of Death” within three years of their purchase. Previously, Microsoft offered a one-year warranty for Xbox consoles.

Microsoft also said that it will retroactively reimburse customers who have paid for repairs related to the red-light error message.


Hardware issues with the Xbox 360 have been widely reported lately, and the red-light message was dubbed the Red Ring of Death by gamers and bloggers.

Various published reports place the failure rate of Xbox 360 consoles at between 30% and 33%.

Liddell said that at the end of June, Microsoft had sold 11.6 million Xbox consoles. That figure falls short of prior estimates: Liddell said in December that Microsoft expected to have sold 12 million of the consoles by the end of June.

Bach declined to disclose the number of consoles that have experienced failures, though he said that “with a billion-dollar charge… it’s a meaningful number.”

The online publication DailyTech reported on July 3 that a British game-console repair company has withdrawn its service for the red-light error, citing the high volume of requests for such repairs.

In addition, a blog has been published specifically addressing the Red Ring of Death and offering methods for preventing it. Visit the blog.

Bach said that no evidence of the red-light error message surfaced during the first months after the Xbox 360’s release late last year, but elaborated with the following: “In the last couple of months, we started to see significant increases in repair requests … and significant attention from people, so we geared up to respond to that.”


The executive added that an alteration already has been implemented in both consoles Microsoft has in its inventory, as well as those now being manufactured. “We think we have our hands around it at the engineering level.”

The US$1.05 billion to US$1.15 billion charge comes as Microsoft last reported having $28.2 billion in cash and short-term investments on hand at the end of its fiscal third quarter ended in March.
Microsoft is due to report fourth-quarter earnings July 19.

The Xbox constitutes a relatively small portion of Microsoft’s revenue. The company’s entertainment and devices unit, which includes the Xbox, posted $947 million in revenue for the company’s third quarter, compared with $5.28 billion in revenue for the Microsoft’s client unit, which includes its flagship Windows operating system.

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