Recently there have been increasing rumblings about an unprecedented defect rate on the order of 30% in Microsoft’s Xbox 360 game console (e.g. , ). Today Microsoft acknowledged the problem and promised to fix it at the estimated cost of $1 billion:
Microsoft Corp. today announced that it will expand its global Xbox 360™ warranty coverage. Any Xbox 360 customer who experiences a general hardware failure indicated by three flashing red lights will now be covered by a three year warranty from date of purchase. All other existing Xbox 360 warranty policies remain in place.
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. Having identified a number of factors which can cause general hardware failures indicated by three red flashing lights on the console, Microsoft has made improvements to the console and is enhancing its Xbox 360 warranty policy for existing and new customers.
Microsoft stands behind its products and is taking responsibility to repair or replace any Xbox 360 console that experiences the “three flashing red lights” error message within three years from time of purchase free of charge, including shipping costs. Microsoft will take a $1.05 billion to $1.15 billion pre-tax charge to earnings for the quarter ended June 30, 2007 for anticipated costs under its current and enhanced Xbox 360 policies.
In case you were wondering, competitive consoles don’t seem to be having anywhere near the same failure rate. Theories abound as to what the actual problem is, but Microsoft has not been specific.
Update: In the call to discuss the problem it also came out that the Xbox 360 is going to miss the 12 million unit sales target for fiscal 2007 by 400,000 units. The target had been reduced from 13-15 million units in January.