Microsoft to extend Xbox 360 warranty, take $1 billion hit

Software maker says it's seeing "unacceptable number of repairs;" investigation finds several factors could lead to hardware failures.

Microsoft said Thursday that it will take a $1 billion charge as it extends the warranty on the Xbox 360, after an investigation showed the game console can be prone to hardware failures.

"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," Microsoft said in a statement.

Microsoft said its probe found "a number of factors" that can cause a general hardware failure indicated by three red flashing lights on the console. The company said that, in addition to extending the warranty, it has made unspecified design changes to the product.

Microsoft said it will cover machines that experience failures for up to three years from the date of purchase. To cover the cost of the new policy, Microsoft said it will take a pretax charge of $1.05 billion to $1.15 billion in its just-ended quarter.

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"The majority of Xbox 360 owners are having a great experience with their console and have from day one," Entertainment & Devices Division President Robbie Bach said in a statement. "But, this problem has caused frustration for some of our customers and for that, we sincerely apologize."

Microsoft also disclosed Thursday that it failed to reach its target of selling 12 million Xbox 360s by the end of its fiscal year on June 30. The company sold 11.6 million units, CFO Chris Liddell said during a conference call.

"That is slightly shy" of its projections, Liddell said, but added "we're happy with that number."

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Reports of glitches with the Xbox 360 began cropping up shortly after its November 2005 release.

While the company downplayed reports of faulty hardware for the better part of a year after launch, last September it acknowledged that its original batch of systems was failing at an unusually high rate. Microsoft extended the standard 90-day warranty to a full year, and promised to reimburse those customers who had already been made to pay for repairs.

In April, the company once again tweaked its warranty service, saying it would no longer charge shipping on repaired Xbox 360 consoles, and would extend the warranty on those repairs.

Software not a factor
In an interview with CNET sister site GameSpot, Peter Moore, vice president of the Entertainment & Devices Division, said he was personally sorry and apologized to all those who had experienced a failure.

"We haven't done right by our customers, and for that I apologize," he told GameSpot. "We listened, and we're going to make it right." Moore also posted an open letter to the 360 community on

Moore rejected the notion that the Forza Motorsport 2 racing game was "bricking" consoles. "It's not a software issue, guys," he assured GameSpot. "It's a variety of hardware issues which we're taking steps to rectify."

In a conference call, Bach said no safety issue is involved with the problems.

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