Some estimates indicate a failure rate of one in every three units.
By Eric A. Taub at Chron.com.
In what may be one of the costliest consumer warranty repairs in history, Microsoft announced Thursday that it would spend up to $1.2 billion to fix failing Xbox 360 game machine consoles and extend warranties from one year to three years.
While the company would not say how many units were failing, Robbie Bach, president of Microsoft’s entertainment and devices division, said there have been an “unacceptable high number of repairs.”
The “majority” of Xbox 360 owners, he said, have not experienced hardware failure.
Company officials said Microsoft had sold 11.6 million Xbox 360 units as of the end of the last quarter, just shy of company predictions of 12 million units.
The Xbox 360 is currently the best selling game console in the United States, according to NPD, a market research firm.
The size of the anticipated repair bill suggests anywhere from a third to half of the machines are flawed.
The Redmond, Wash., company said it would take a charge of between $1.05 billion and $1.15 billion against earnings in the quarter ended June 30th.
Consumers know they have a problem if three red flashing lights appear on the console. Gamers on online forums refer to the event as “the Red Ring of Death” because the machine then shuts down.
The company refused to explain the cause of the failure, but said it was not caused by a single issue in the machine that contains 1,700 different components and 500 million transistors, and there are no health or safety issues involved.
The problem began to appear over the past three to four months, according to Bach, after “significant usage” of the consoles. Bach said the company has taken steps to correct the problem in new devices.
Microsoft said it will extend the warranty of the game console to three years world-wide. Previously, products sold in the United States were covered by a one year warranty, while Xbox 360 units sold in Europe received a two year warranty.
In addition, any customers who have had their consoles repaired due to the “three flashing lights” problem will be reimbursed for the cost of repairs.
Though sales are small relative to the rest of Microsoft’s revenue, the XBox has been an important venture, viewed by many analysts as Microsoft’s attempt to compete with the likes of Sony and Apple for home electronics and entertainment.
Microsoft said its entertainment and devices division reported an operating loss of $315 million on $929 million in revenue for the three month period that ended in March.
A new XBox 360 with a 20-gigabyte hard drive sells for about $400, but other versions are about $300.
The announcement comes on the eve of the E3 Media and Business Summit, the video game industry’s major trade show, next week in Los Angeles.
“This is bound to affect discussions between Microsoft and its developers and retailers,” said Richard Doherty, a partner in research firm Envisioneering Group.
Microsoft said Xbox 360 owners could call 800-4-MY-XBOX, or 800-469-9269, or visit http://www.xbox.com.