Xbox 360 failures are ‘widespread’
SEATTLE — Microsoft Corp. on Thursday extended the warranty on its Xbox 360 to three years after too many of the video game consoles have succumbed to “general hardware failure.”
The company said it will record a $1.05 billion to $1.15 billion charge for the fourth quarter that ended Saturday to pay for “anticipated costs.”
Microsoft’s entertainment and devices division, which makes the Xbox 360 and the Zune digital music player, reported an operating loss of $315 million on $929 million in sales in the third quarter this year.
Matt Rosoff, an analyst at the independent research group Directions on Microsoft, estimates the division has lost more than $6 billion since 2002. Microsoft has written down larger amounts in the past — more than $10 billion in the late 1990s related to investments in telecommunications companies, and more than $5 billion related to antitrust issues — but for one division in one quarter, it’s a hefty amount.
“It suggests the problem is pretty widespread,” Rosoff said. The analyst said Microsoft may also be recording such a big charge this fiscal year to avoid falling short of a goal to reach profitability for the division in 2008.
Microsoft offered contrition but few details about the extent of the Xbox 360 failures.
“We don’t think we’ve been getting the job done,” said Robbie Bach, president of the division. “In the past few months, we have been having to make Xbox 360 console repairs at a rate too high for our liking.”
Bach said the company made some manufacturing and production changes that he expects will reduce Xbox 360 hardware meltdowns, which are indicated by three flashing red lights on the front of the console.
The executive declined to identify the problems Microsoft fixed, or say what problems remain that could prompt general hardware failure. Bach also would not say how many gamers have sent in machines for repair — just that the percentage is “bigger than we are comfortable with.”
Microsoft will pay for shipping and repairs for three years, worldwide, for consoles afflicted with what gamers casually call “the red ring of death.” Previously, the warranty expired after 1 year for U.S. customers and 2 years for Europeans.
Microsoft also will reimburse the “small number” of Xbox 360 owners who have paid for shipping and repairs on out-of-warranty consoles, Bach said.
Shares of Microsoft dipped a penny in after-hours electronic trading, after losing 3 cents to close at $29.99.