Microsoft's Xbox hardware failures prove costly

Microsoft said Thursday that it will take a charge of $1.05 billion to $1.15 billion for the quarter ending June 30 to cover enhanced warranty coverage on the Xbox.

The Xbox, one of Microsoft's faster growing businesses, will now have a three-year warranty from time of purchase in addition to other policies. Xbox customers have been annoyed by a bevy of "three flashing red lights" error messages. In various reports, this error was known as the Red Ring of Death.

In a statement, Microsoft said:

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.

In an open letter on the Xbox site, Microsoft's corporate vice president of interactive entertainment Peter Moore said:

You've spoken, and we’ve heard you. Good service and a good customer experience are areas of the business that we care deeply about. And frankly, we've not been doing a good enough job.

Microsoft said it will reimburse anyone who has incurred repair expenses. The charge was portrayed as an "investment in our customer base."

Some more cynical folks would say it's a penalty for shoddy manufacturing processes. At last check, Microsoft makes the Xbox 360 along with Flextronics.