Microsoft's Xbox 360 games console just took a huge step away from profitability yesterday when the company announced that it will take a $1 billion charge to cover manufacturing defects and the additional burden of giving consumers an extended warranty. Will the Xbox ever turn a profit?
Microsoft's quite used to fixing problems retrospectively, but it seems that hardware repairs are a lot more expensive than pushing out software updates for buggy software. In particular, the "three flashing lights error message of death" has caused gamers a significant amount of headache, with some having to return their consoles to Microsoft for repair several times. Microsoft now claims to have identified “a number of factors” which contribute to the consoles unreliability, although it declined to comment on what these factors were. I guess a billion is the cost of rushing a games console out of the door without carrying out proper reliability testing.
The game console market has changed considerably since Microsoft entered it with the Xbox. Instead of sharing the market with Sony, both companies are being hammered by the infinitely more fun (and very reliable) Nintendo Wii. The Nintendo Wii proves that not only can you grab a large market share quickly, you can make money doing so.
Still, Microsoft claims that the Xbox can be profitable by 2008. Given this latest charge, I really doubt this.