Microsoft takes a $1 billion hit for Xbox 360 console problems

Microsoft takes a $1 billion hit for Xbox 360 console problems

Summary: After a rash of recent reports about Xbox 360 hardware problems, Microsoft has opted to extend Xbox 360 warranties to three years, at a cost of approximtely $1 billion.

TOPICS: Microsoft, Hardware

After a rash of recent reports about Xbox 360 hardware problems, Microsoft has opted to extend Xbox 360 warranties to three years.

The company announced its plan to extend Xbox warranties on July 5.

The upside: Microsoft has done what's right for customers, by reimbursing anyone who has experienced the "three flashing red lights" error and incurred repair expenses. The downside (for Microsoft): It is taking a $1.05 to $1.15 billion charge for its quarter ending June 30 to make good on reported hardware problems.

Microsoft officials have said they believe Xbox hardware failure rates to run between three and five percent, which the company considers acceptable. But some retailers claim the Xbox console failure rate to be substantially higher, approaching 33-plus percent.

Topics: Microsoft, Hardware


Mary Jo has covered the tech industry for 30 years for a variety of publications and Web sites, and is a frequent guest on radio, TV and podcasts, speaking about all things Microsoft-related. She is the author of Microsoft 2.0: How Microsoft plans to stay relevant in the post-Gates era (John Wiley & Sons, 2008).

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  • How do they stand by 3-5%?

    1 Billion, even at full retail price, is a lot of XBoxes. That would be replacing 25% of the current marketshare.
    • 3-5% failures during normal warranty

      is what I think they are saying. They want quality control good enough to keep the warranty work down in the 3-5% range. Kudo's to MS for doing this though, excellent PR, and will certainly help people decide on a console in terms of standing behind the product.

  • Thank god for Microsoft!

    After dealing with a number of small and medium software developers who expect you to pay to fix their bugs, this is a refreshing change.
  • More like 30-33%

    If quotes from EB Games are to be believed. Even Best Buy employees are citing a 25-33% failure rate. The common belief is that insufficient cooling for the CPU cluster is the prime culprit. Certain game titles--'Dead Rising', for one--have been cited as primary instigators in causing the Red Ring of Death. It's believed that their coding is taxing the multi-CPU architecture to the point that the available cooling can't keep up.

    Recent 360 consoles are shipping with more powerful, uprated cooling fans which supposedly are enough to handle the previously unforeseen heat levels.

    Since I have an early 360, I suspect that it could also fall prey to the RROD if using the wrong, resource intensive game title. It's good that Redmond is extending the warranty, but I'd rather have my 360's fan upgraded NOW than wait for the collapse at 3 years, 1 day after the date of purchase.
  • What's new release crap fix later.

    Microsoft goal is to get to market first problem or not. When Xbox 260 was overheating when first release they blame users at first.

    They have this we can always fix it later mind set for software that is now seems to be creeping in to the hardware division.

    Microsoft needs take quality control serious before releasing products not just after people complain or they start loseing money.
  • Gluttons for punishment

    How can Microsoft fail to make money when dimwits out there will happily fail their way through (in one case) 12 Xboxes.
  • They deserve credit

    Personally I do respect them for facing this problem as "their" problem vs. the consumers.
  • This... pretty cool.
  • How could they do otherwise?

    With the flop of Vista, the
    back-peddling has begun. They have put
    their handles on the other end of their
    virtual wheelbarrow and are attempting
    to haul their load in the opposite

    Microsoft : The Fall From Grace,289142,sid39_gci1245710,00.html

    "In a time where their biggest product
    launch in many years has just happened
    Microsoft is suppose to be quite on top
    of things. However, things are not well
    at Microsoft even though their major
    cash cows: Windows and Office has just
    been launched in new versions. The
    newest version of Windows - Vista - is
    looking like a failure of graet
    proportions on more than one front for
    Microsoft. The hype surrounding the
    launch of Vista is now being questioned
    every day, like the great hype
    surrounding Microsoft’s real support
    intentions on “Games for Windows”. The
    problems surrounding the “Windows Vista
    Capable” stickers also ended up being an
    embarrassing affair for Microsoft, when
    customers discover that they had been
    caught between hype and a lie. With
    Vista Microsoft’s marketing department
    outdone both themselves and the truth
    resulting in great marketing deception
    the real discussion quickly ended up in
    one question: Was the sales of Vista
    really good or bad?

    When such a question is asked the
    marketing department quickly readies
    their hype machine and sets a spin on
    every sales number they can find. Nobody
    wants the investors to see the true
    signs of a weakened Microsoft with
    reduced earnings in sight. Unfortunately
    for Microsoft they are the only one
    knowing about the true sales numbers of
    Vista. The hardware vendors have already
    been complaining about the poor sales of
    Vista, while Microsoft continues to deny
    everything. Hauppage points to poor
    sales of Vista, as well. The sales of
    Vista in China cannot even be
    categorized as poor, but catastrophic -
    especially since this is a market
    Microsoft is betting heavily on! The
    demand for Vista is waining and has made
    Dell allow customers to keep ordering
    Windows XP for their new computers, but
    Microsoft isn’t about to let this
    continue - They need to show good Vista
    sales numbers and they are having real
    problems doing so!

    While Microsoft newest product, Vista,
    is having take-off troubles, another
    problem is creeping in everywhere on
    their domain - Linux… The open source
    solutions and especially Linux has been
    slowly gathering steam while Microsoft
    was busy building Vista. When Vista
    failed to impress they are leaving
    themselves vulnerable for a serious
    amount of time. A new operating system
    cannot be built overnight and Vista
    simply doesn’t offer the customers any
    real new value, compared to Windows XP
    and Linux. Microsoft has been forced to
    accept that some of their largest
    customers are going a way Microsoft has
    been fearing for some time. Dell has
    just announced that they will be selling
    computers with the Ubuntu distribution
    of Linux pre-installed and has done so
    with a massive hype surrounding the
    event. This of course sends
    repercussions throughout the market and
    especially on the server side is
    competition hard for Microsoft with HP,
    IBM and Dell now offering extremely
    popular server solution with Linux.
    Ubuntu, in its newest version, is
    showing major class and potential and
    has quickly become a respected
    alternative to Windows in many areas.
    Ubuntu is often more easy to maintain,
    especially with the built-in software
    package system and high stability.

    Open source has always been a major
    obstacle for Microsoft. In some areas
    Microsoft uses and embraces the values
    of open source and in others their fears
    of the competition leads Microsoft to
    hate it. This dual feeling is based upon
    Microsoft being a huge company and
    different departments act differently.
    Over the years Microsoft has become more
    and more frustrated with open source,
    which has been quite clear in the memos
    released in the antitrust cases against
    Microsoft, where Bill Gates thought
    about using their status as a monopoly
    to make it impossible for Linux to
    implement ACPI or to go after free
    office suites by dragging them through
    hard patent cases and court after court.
    Meanwhile, however, Microsoft doesn’t
    mind urging an anti-trust case against
    Google, when they become a competitor
    that doesn’t bend to Microsoft’s will.
    The problem with Google for Microsoft is
    that they keep on doing well, no matter
    what Microsoft attempts. Microsoft on
    the other hand continues to do poorly in
    this market and thereby giving Google an
    indirect boost by showing investors that
    Google can indeed outdo Microsoft - even
    though Microsoft is doing all they can
    to use their monopoly to push their
    technology out to everyone. In terms of
    Google another problem is staring
    Microsoft in the face every day: Google
    is using a lot of open source and
    continues to boost the open source
    Ole Man
  • cleaning the cd-rom...

    My son plays his xbox 360 way too much. Every couple of months it stops reading the game disks. We run a CD cleaning disk for a couple minutes and all is well again. Thanks Microsoft for a great gaming product.
  • 33 percent failure rate on Xbox

    Thank God for MS!!!!
  • Microsoft lies about xbox live security breach

    Not that it comes as any great surprise that Microsoft has yet again covered up a security flaw in one of their products but this one is personal. Microsoft denies that xbox live has been compromised yet their own tech support admits that they are seeing a marked increase in complaints regarding hijacked gamer tags, accounts, and credit cards on file. The perpetrators use Zone alarm and tunneling software to read, log, and tunnel player's I.P. addresses during ranked or "match making" Halo 2 games. The better hackers are able to breachMicrosoft security even during private chat sessions.

    Once the hacker gets into your account they can use credit cards on file to make purchases on Xbox 360 marketplace. To prevent the legitimate account holder from making any changes on their paid account the hacker changes the Microsoft Passport email account password.

    This locks out the real account holder while the account hijacker freely goes about using the xbox live account until the original owner notifys xbox support which is a real experience in itself.

    If you thought you have experienced the worst in off-shore customer support you haven't called the primates at Microsoft India, Philippines, and the other third world support centers assigned to the Xbox product line.

    After a month and a half of getting to know many techs representing the U.N. of Microsoft's low budget tech "support" and after being lied to about fixing our situation Microsoft told me that I violated the terms of their use agreement by releasing private data. In other words rather than admitting fault they simply canceled our account stealing hard earned money from us. No offer of another account, nothing. This is flat out theft.

    I am launching a class action against this horrible company and hope to locates the hundreds likely thousands of Microsoft victims out there. I will be putting up a new site called next week to allow others to share their experiences.

    I am seeking legal council to help in this endeavor and I may be reached at

    Microsoft has to be one of the sleaziest firms in the world constantly using consumers as beta testers on prematurely released software and hardware. I may have been ripped off a dozen times on cheesy Microsoft programs in the past but when they steal from my son cash and deny him an account that had hundreds of hours invested I have to take action.

    Theft is theft. Microsoft is an irresponsible, lying, corporate monster that would rather cover up a security breach than simply reimburse consumer losses.

    Just as a side note we actually had to replace six bad Xbox 360's in less than a year! To add insult to injury we bought the Elite version at a premium price tag only to get a bad hard drive right out of the box!

    If you purchase one of these piles of junk pay for the extended warranty as it will pay huge dividends.

    And for God's sake try to keep your sanity when, not if, you have to call tech support. This will be a lesson in patience unlike any other. There is no known unit of measure to quantify the I.Q. of Microsoft's idea of support techs. You will likely be faced with Darwinian images of tree mounted phones and vine tethered partially evolved bipeds as you try to visualize the "person" on the other end of the phone when they ask you the same questions over and over again.
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