Microsoft announced that it may spend more than $1 billion fixing flawed Xbox 360 video game consoles, which have logged 'an unacceptable number of repairs'.
SAN FRANCISCO: Microsoft announced on Thursday it expects to spend more than a billion dollars fixing flawed Xbox 360 video game consoles, which have logged "an unacceptable number of repairs."
The blow to Xbox 360's reputation comes as it vies in the marketplace with Sony's languishing PlayStation 3 and Nintendo's coveted Wii consoles, which made their debuts in November of 2006. Microsoft reports it has sold approximately 11.6 million Xbox 360 consoles since its US launch at the end of 2005.
The figure falls short of the 12 million unit mark Microsoft set as its goal. "That is slightly shy, but in the overall context of the marketplace we are happy with that number," Microsoft chief financial officer Christopher Liddell said in a conference call with reporters and investment analysts.
The company would not disclose how many of the consoles have needed repair. "Suffice to say that with a billion-dollar charge and the focus we are putting on this it is a significant number and one that has our attention," Bach said. "We think we have our hands around it at the engineering level."
Microsoft said it discovered console flaws that cause hardware failures signaled by three flashing red lights. The problem is one of Xbox 360 design, not something caused during assembly, according to Microsoft Entertainment and Devices Division president Robbie Bach. "It is really our responsibility not anyone else's," Bach said during the conference call. "You should think of it as a Microsoft design challenge."
Microsoft is offering to repair or replace problematic Xbox 360 consoles. Microsoft is extending Xbox 360 warranties from one to three years and offering to reimburse those who bore the cost of fixing the consoles. "This problem has caused frustration for some of our customers and for that, we sincerely apologize," Bach said.
"We value our community tremendously and look at this as an investment in our customer base." Bach contends that the majority of people that bought Xbox 360 consoles since they were launched by the US technology giant in November of 2005 have had "great experiences" with them.
Microsoft said the design flaw has been corrected so that future Xbox 360 consoles should not have the problem. Units Microsoft has in inventory will be fixed prior to shipping or tossed out, which ever is more cost effective.
The expected expense of the program will be represented by a charge of 1.05 to 1.15 billion dollars in the company's financial quarter ending June 30, 2007. Liddell said Microsoft's Xbox and game software division remains on track to make its first profit in the company's 2008 fiscal year.
Microsoft orchestrated the accounting so the Xbox 360 repair charges are quickly put behind the company by being counted in what is the final quarter of its 2007 fiscal year.
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