Microsoft Expands Xbox 360 Warranty, Takes Billion Dollar Hit

Xbox 360 owners fearing the "Red Ring of Death" can rest easier. Microsoft announced an extension to the Xbox 360 warranty today protecting owners from general hardware failure for three years from purchase date.

The extension applies to any Xbox 360 owners whose consoles flash the all-too-familiar three red lights when attempting to boot up. The error has plagued many disgruntled Xbox 360 owners since the system's launch.

"Over the past couple of months, the number of repairs to Xbox 360 consoles has been unacceptable to us," said Robbie Bach, president of Microsoft's Entertainment and Devices Division, in a conference call regarding the expanded warranty.

Bach also said Microsoft has "already made improvements to the Xbox 360 console that will reduce these issues going forward." This may refer to reports of Xbox 360s being outfitted with extra heat sinks to prevent console failure.

Shacknews recently reported on an independent repair center declining to accept Xbox 360s and an individual who had sent his console back to Microsoft more than 10 times.

Microsoft has estimated the extended warranty will cost the company between $1.05 billion and $1.15 billion, and is noting this charge on its earnings for the quarter ended June 30.

"In arriving at this charge we completed a comprehensive analysis which included key assumptions around factors such as expected Xbox 360 return rates, average repair costs per unit, and the ability to resell returned units," said Microsoft CFO Chris Liddell in the same conference call.

Despite this substantial charge, Liddell said the company will remain on target with stated goals.

"We do not expect the changes announced today will have an impact on the Entertainment and Devices Division's fiscal year '08 financial outlook," he said. "The long-term fundamentals of the business remain strong, and we are maintaining our goal of FY08 profitability for both the Xbox business and the Entertainment and Devices Division overall."

Customers who paid for out-of-warranty general hardware failure will receive a reimbursement check from Microsoft in 10 to 12 weeks.

Microsoft posted an open letter from corporate VP Peter Moore apologizing for the ordeal as well as an FAQ summarizing the process.