Microsoft Corp announced on Thursday it expects to spend more than US$1 billion fixing flawed Xbox 360 video game consoles after logging what it called "an unacceptable number of repairs."
Twenty months after the gaming console's launch, the US IT giant conceded that a large number of Xboxes had been returned for repairs stemming from "general hardware failures."
Although the company would not disclose how many consoles had needed mending, it said that repairs, compensation and warranties could cost as much as US$1.15 billion.
It also said it was expanding the warranty for purchasers.
"Suffice to say that with a U$1 billion charge and the focus we are putting on this it is a significant number and one that has our attention," Microsoft Entertainment and Devices Division president Robbie Bach said.
The blow to Xbox 360's reputation comes as it vies in the marketplace with Sony Corp's languishing PlayStation 3 and Nintendo Co's coveted Wii consoles, which made their debuts last November.
Microsoft reported that it has sold approximately 11.6 million Xbox 360 consoles since its US launch in November 2005. The figure falls short of the 12 million unit mark Microsoft set as its goal.
"That is slightly shy, but in the overall context of the marketplace we are happy with that number," chief financial officer Christopher Liddell said in a conference call with reporters and investment analysts. "We think we have our hands around it at the engineering level."
Microsoft said it had discovered console flaws that cause hardware failures signaled by three flashing red lights.
The problem is one of Xbox 360 design, not something caused during assembly, Bach said.
"It is really our responsibility, not anyone else's," Bach said during the conference call. "You should think of it as a Microsoft design challenge."
Microsoft has offered to repair or replace problematic Xbox 360 consoles, extend Xbox 360 warranties from one year to three years and has offered to reimburse those who bore the cost of fixing the consoles.
Microsoft said the design flaw had been corrected so that future Xbox 360 consoles should be free of the problem.
The expected expense of the program will be represented by a charge of US$1.05 billion to US$1.15 billion in the company's financial quarter ending June 30.
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