In response to concerns over 'Red Ring of Death,' Microsoft extends XBox 360 warranty to 3-years
Friday 06th July 2007, 02:07:00 AM, written by Carl Bender
Microsoft today made the surprise announcement that they will be
extending all XBox 360 warranties to three years with regard to their
application towards the "red ring of death" issue (other hardware
issues will remain addressed via current 1-year coverage). In
supporting this move, MS is expecting to take a charge of between $1.05
and $1.15 billion dollars, to be reflected in the upcoming report for
the fiscal quarter ended June 30th. On a conference call held with
analysts this afternoon to discuss
the move, several facts emerged with regard to the XBox business
performance and outlook, as well as some insights into how the problem
has been perceived within Microsoft.
An issue that has gained increased traction with the press over the past several weeks, it was disclosed by Microsoft that the reported rate of hardware failure has seen a marked increase over the last several months relative to the first twelve. Without giving hard figures when asked - which Microsoft has been reticent to discuss for some time - Robbie Bach stated that the failure rate "has been unacceptable," while saying also that the issue "wasn't on our radar screen" for the first year post-launch. Increased call volumes, repair requests, and press coverage triggered an investigation of the 360 hardware within Microsoft that has led to the identification of several problem areas within the design of the console.
Microsoft went further by indicating that the problems have not been local to their suppliers, but rather a failure of design that has been corrected and addressed via a revision of the fundamental hardware. Though not explicitly described, such a change will likely take the form of a motherboard revision, as well as possible component placement changes - both factors that have been fingered in the past as probable causes for the ''red ring'' failures.
In terms of the ~$1 billion charge, roughly half will be taken up front to account for existing consoles in the consumer space affected by the issue, as well as to absorb losses due to existing inventory Microsoft will write-off as a result of the failures. As Microsoft is providing their warranty retroactively, an important aspect of the extended coverage will take the form of a refund given to all 360 owners who have paid to have their ''red ring'' issues corrected while out of warranty. Beyond the regular accounting that has reflected warranty coverage expenses quarter-to-quarter, this one-time effort towards resolving current issues will result in a roughly $40/console cost for all units shipped thus far by Microsoft.
The second half of the ~$1 billion charge covers what Microsoft feels will be liability exposure over the next 18 months or so as a result of the extension, and will be drawn against cash on hand on an incremental basis, as that liability is realized going forward.
Although the context of the conference was to highlight the warranty extension and its financial toll on Microsoft, the tone of the conference on the part of the Microsoft representatives was nevertheless upbeat. The call was used to frame the situation going forward as one in which Microsoft feels it is "in a good position strategically," with what it believes will be one of the strongest game lineups of all time at this years E3.
By taking the full charge for expected extraordinary warranty costs in the present quarter, Microsoft felt comfortable reaffirming their goal of profitability for the Entertainment and Devices division in fiscal 2008 as on track to be met; the goal of achieving profitability this fiscal year has been a longstanding target within the division.
During the conference call, it was also revealed that in the fiscal year ended June 2007, 11.6 million Xbox 360 consoles had shipped; 400,000 shy of the public target of 12 million.
The official Microsoft press release is viewable here; a letter to XBox owners by Peter Moore, here.
An issue that has gained increased traction with the press over the past several weeks, it was disclosed by Microsoft that the reported rate of hardware failure has seen a marked increase over the last several months relative to the first twelve. Without giving hard figures when asked - which Microsoft has been reticent to discuss for some time - Robbie Bach stated that the failure rate "has been unacceptable," while saying also that the issue "wasn't on our radar screen" for the first year post-launch. Increased call volumes, repair requests, and press coverage triggered an investigation of the 360 hardware within Microsoft that has led to the identification of several problem areas within the design of the console.
Microsoft went further by indicating that the problems have not been local to their suppliers, but rather a failure of design that has been corrected and addressed via a revision of the fundamental hardware. Though not explicitly described, such a change will likely take the form of a motherboard revision, as well as possible component placement changes - both factors that have been fingered in the past as probable causes for the ''red ring'' failures.
In terms of the ~$1 billion charge, roughly half will be taken up front to account for existing consoles in the consumer space affected by the issue, as well as to absorb losses due to existing inventory Microsoft will write-off as a result of the failures. As Microsoft is providing their warranty retroactively, an important aspect of the extended coverage will take the form of a refund given to all 360 owners who have paid to have their ''red ring'' issues corrected while out of warranty. Beyond the regular accounting that has reflected warranty coverage expenses quarter-to-quarter, this one-time effort towards resolving current issues will result in a roughly $40/console cost for all units shipped thus far by Microsoft.
The second half of the ~$1 billion charge covers what Microsoft feels will be liability exposure over the next 18 months or so as a result of the extension, and will be drawn against cash on hand on an incremental basis, as that liability is realized going forward.
Although the context of the conference was to highlight the warranty extension and its financial toll on Microsoft, the tone of the conference on the part of the Microsoft representatives was nevertheless upbeat. The call was used to frame the situation going forward as one in which Microsoft feels it is "in a good position strategically," with what it believes will be one of the strongest game lineups of all time at this years E3.
By taking the full charge for expected extraordinary warranty costs in the present quarter, Microsoft felt comfortable reaffirming their goal of profitability for the Entertainment and Devices division in fiscal 2008 as on track to be met; the goal of achieving profitability this fiscal year has been a longstanding target within the division.
During the conference call, it was also revealed that in the fiscal year ended June 2007, 11.6 million Xbox 360 consoles had shipped; 400,000 shy of the public target of 12 million.
The official Microsoft press release is viewable here; a letter to XBox owners by Peter Moore, here.
Tagging
±
Related News
Diving into Anti-Aliasing
RWT explores Haswell's eDRAM for graphics
ATI shoots a Bolt through its GPU compute stack
AMD releases CodeXL 1.0
Travelling in Style: Beyond3D's C++ AMP contest
Analysis of Ivy Bridge Graphics Architecture at RWT
RWT analyzes Kepler's architecture
Nvidia 680 GTX (Kepler) Released
Microsoft Releases C++ AMP Open Specification
Nvidia's 2x Guaranteed Program
RWT explores Haswell's eDRAM for graphics
ATI shoots a Bolt through its GPU compute stack
AMD releases CodeXL 1.0
Travelling in Style: Beyond3D's C++ AMP contest
Analysis of Ivy Bridge Graphics Architecture at RWT
RWT analyzes Kepler's architecture
Nvidia 680 GTX (Kepler) Released
Microsoft Releases C++ AMP Open Specification
Nvidia's 2x Guaranteed Program
