Red ring of Xbox death costs Microsoft $1bn

Hot money hole

Microsoft is taking a $1bn hit to fix Xbox 360s, conceding residual hardware faults in its games console are causing users frustration and an "unacceptable number of repairs."

The software giant said Thursday it's extending the Xbox 360's current one-year warranty to three years from date of purchase to cover a hardware crash that generates a trio of red warning lights, branded "the red ring of death." Microsoft is also reimbursing customers who've previously paid for repairs.

Additionally, Microsoft admitted the Xbox 360 has failed to hit its planned target of 12 million units sold by the end of June - chief financial office Chris Liddell said 11.6 million devices had sold since the November 2005 launch. The 12 million number had already been cut in January from between 13 million and 15 million.

The news came as Microsoft also passed its self-imposed deadline for its latest consumer venture, the Zune music player. Microsoft's lack of formal announcement suggests it failed in its target of one million Zunes sold by the end of June - the close of Microsoft's fiscal year.

Microsoft has taken increasing flack on the Xbox 360, not simply because the hardware is copping out at such a high frequency, but also for poor Microsoft customer service.

Some 30 per cent of Xbox 360's are estimated to overheat heat and fail, with one man surely scooping an award for endurance and loyalty having owned a total of eight units that bombed. Until now, customers outside their warranty have been encouraged to call a special telephone repair line where they've been charged $129 to fix the $300 - 400 machines. Those reluctant to spring for the cash have been offered a number of DIY fixes, such as those here and here.

After a year and a half of mounting complaints, Robbie Bach, president of Microsoft's entertainment and devices division, downplayed the timing of today's news saying: "This is just one of those things that happens when it happens. We reached our conclusion early this week and because it's a financially meaningful issue we had to announce it immediately."

Microsoft will absorb the Xbox 360 costs, estimated at between $1.05bn and $1.15bn, in the fourth quarter that just closed. Microsoft is due to present the full quarterly and annual results later this month.®