Microsoft Corp. said it would take a more than $1 billion charge to fix "an unacceptable number of repairs" to its Xbox 360 video game consoles and had missed shipment targets for the end of June.
Microsoft is under pressure with mounting complaints about Xbox 360 failures on the Internet and growing expectations that Sony Corp. could slash the price of its rival PlayStation 3 console at a video game exposition next week.
So far Microsoft has the lead on Sony in the battle for high-end video game machines, but it shipped only 11.6 million 360s by the end of June, compared with a target of about 12 million, Chief Financial Officer Chris Liddell said during a conference call with analysts on Thursday.
Microsoft said it had investigated the sources of hardware failures indicated by three red flashing lights on the console and had identified "a number of factors" that can cause such failures. Bach said many of those factors took time to show up in the consoles, explaining why the number of repairs had grown in the second year of the Xbox 360`s release. He would not say exactly how many Xbox 360s had been returned due to hardware issues except that "the number is too large."
The company said it would extend warranty coverage to three years to cover the problem and would reimburse customers who had previously paid for repairs related to the three-flashing-lights error message. It also said it has made improvements to the Xbox 360 console. The charge will be in a range of $1.05 billion to $1.15 billion, before taxes, for the quarter ended June 30, Microsoft said.
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