Xbox 360 'red ring of death' costs Microsoft more than than $1B

Surge in bricked consoles moves Microsoft to admit design flaws, extend warranty and offer costless repairs

Senior Reporter, Computerworld |

Microsoft Corp. said today it was taking a $1 billion-plus charge against earnings to extend the warranty of all Xbox 360 consoles considering of an "unacceptable number of repairs" caused by design flaws in the video game car.

During a conference call with fiscal analysts and reporters, Robbie Bach, the head of Microsoft's entertainment sectionalization, and CFO Chris Liddell announced the warranty alter and spelled out its financial touch. After touting the Xbox 360's success, Bach turned to the matter at hand. "But there's ane surface area of the business where we're not doing a good enough job," he said. "Over the past couple of months, the number of repairs for the Xbox 360 console have been unacceptable to united states of america."

Nether the new warranty, any Xbox 360 panel that shows three flashing red lights -- the error signal for the vague "general hardware failure," dubbed by some users every bit the "red band of decease" -- will be repaired free of charge for upwardly to three years from its appointment of purchase, said Bach. Aircraft will be included. Customers who accept already paid $139 and more for out-of-warranty repairs volition be reimbursed.

To pay for the anticipated warranty repairs, every bit well as evaluate and ready machines still in inventory, Microsoft said information technology would take a $1.05 billion to $1.15 billion accuse against earnings for the quarter that ended June 30. Liddell said the accuse would be equally split betwixt repairs of already-sold systems and fixes to those however in stock. Some inventoried consoles might be junked if repairs show too expensive. Using Liddell's figures, the boilerplate repair per console sold -- Microsoft said today it had sold xi.6 one thousand thousand Xbox 360s, slightly under its end-of-fiscal-year goal of 12 million -- will toll between $45 and $fifty.

"This will have no impact on outlook for fiscal yr '08," said Liddell. "We are on track for profitability for both Xbox and [the] entertainment [grouping] overall," he said.

Microsoft wouldn't specify the verbal causes of the hardware failure. Bach said simply that in that location were "several factors" that could trigger the error, and that "this is not related to whatsoever safety issue." He as well claimed that the problems appeared in quantity only the by few months. "This set up of bug wasn't visible at all for the showtime year and more than," said Bach. "It was just not on our radar screen. [Just] the by couple of months, we've seen a pregnant increase in call volume, repair book and attention from people."

The company's own Xbox 360 user forums are total of that attention in the form of complaints. "I accept had problem after trouble with my 360," said a user identified equally "FauxStallion" onMicrosoft'due south Technical Issues forum . "It had to exist repaired iii times, then I got a new one, and it broke after 1 month. The bottom line is microsoft has built a terribly poor product and then hides this fact in an extended warranty where you spend most of your time having your 360 in [sic] route to exist fixed to Texas or wherever, instead of playing the console."

Other users on the forums are personally familiar with the cerise ring of death. "Your Xbox is expressionless," said Endless Flow360 in a respond to another user's query about three flashing ruby lights.

"If it's whatever concellation [sic] yous're not lonely," said Desticado on the aforementioned thread. "My 4th xbox since U.k. launch has just died. (my first one died on launch day!). If it's under warrenty [sic] MS accept always been very efficient in my feel. Could be worse though, one friend of mine is now on is [sic] 8th unit!!"

In fact, Microsoft has been dealing with Xbox 360 hardware problems since the console debuted in November 2005. Within days, users flooded forums with reports of consoles overheating and intermittently crashing. Lawsuits were filed in Illinois in 2005 and in California the adjacent year against Microsoft; the latter sought $5 million in amercement. In December 2006, Microsoft extended the Xbox 360 warranty for U.S. and Canadian buyers from 90 days to one year; as in today's announcement, Microsoft said then that information technology would reimburse customers who had paid for out-of-warranty repairs.

In a Q&A session with analysts today, Bach would non put a number to gone-south systems. "It's a meaningful number. It has our attention." He too said Microsoft took full responsibility for the problem. "Information technology'south our responsibleness. Our suppliers have done good work, and we volition go along to work with them. Call back of it as a Microsoft design claiming."

The problems have been addressed, Bach stressed, and with the design tweaked and manufacturing reset, new machines should exist free of these failures. "We think nosotros have our hands around information technology at the engineering level," Bach said.

Both Bach and Peter Moore, the executive who heads the Xbox group within Bach's division, apologized to users. "If we have let any of you lot down in the experience y'all have had with your Xbox 360, we sincerely repent," Moore said in an open letter of the alphabet posted to the company'southward site. The visitor has also created a FAQ that includes additional information about the warranty extension.

Microsoft will be showing a new slate of Xbox 360 games at side by side week'southward E3 Media & Business Summit in Santa Monica, Calif. E3, once a massive consumer-oriented testify, has been recast equally a smaller trade bear witness for developers, retailers, and the printing.

Senior Reporter Gregg Keizer covers Windows, Part, Apple/enterprise, spider web browsers and web apps for Computerworld.

Copyright © 2007 IDG Communications, Inc.