Update: Added Moore comments, call details.
The company said that it launched investigations into problems with hardware “as a result of what Microsoft views as an unacceptable number of repairs to Xbox 360 consoles.”
Microsoft said that it has found numerous reasons why some users are receiving the three red lights error, but did not name any in a statement.
The firm said that it had made unnamed “improvements” to the console and is extending the warranty policy for both new and existing customers, so the move is retroactive and those who paid for repairs related to the error will be reimbursed. Repair and shipping costs will be covered for customers who experience the error where three flashing red lights appear around the console’s power button. The coverage starts from the original date of purchase.
The software giant will be taking a big hit from changing the policy. It has earmarked a $1.05 billion to $1.15 billion pre-tax charge for the fourth quarter ended June 30, 2007 stemming from anticipated costs associated with repairing Xbox 360s.
During a special conference call today attended by Next-Gen, Microsoft CFO Chris Liddell said that the charge will have no impact on previously announced fiscal '08 guidance within either the Xbox business' Entertainment & Devices Division or Microsoft's overall financials.
He reiterated that Microsoft expects both its Xbox business and Entertainment & Devices Division overall to finally turn a profit for fiscal '08.
Microsoft said that other warranty policies will remain in place, so the change only pertains to Xbox 360s specifically afflicted by the three red lights, or "general hardware failure." Microsoft guarantees Xbox 360s for one year otherwise.
During the conference call, Microsoft's president of Entertainment & Devices Division Robbie Bach said that the company has “Frankly not done a good enough job" in addressing hardware issues and customer complaints. He called the amount of failures "unacceptable" and made clear that this was a move to appease frustrated customers, not a response to any inherent safety concern with the Xbox 360.
The exact failure rate for Xbox 360s is still shrouded in mystery. Bach wouldn't comment on the specific numbers, but said “It’s a meaningful number," as illustrated by the $1 billion-plus charge.
There had been unconfirmed reports that Microsoft is actually adding an extra heat sink to Xbox 360 hardware in order to help alleviate problems. But Bach didn't tell analysts what tweaks were being made to the hardware.
He simply said Microsoft had made necessary design changes to the hardware and said as of today, "We have our hands around it at the engineering level.”
Bach added that the error was a “Microsoft design challenge,” and not the fault of any assembly partners. He said that Microsoft has “engineered around” the problem, which is apparently multi-faceted.
There has been an influx of reports detailing the plights of owners of failed hardware. Bach said complaints began piling up significantly in recent months, leading to an investigation into the problem.
Microsoft had been particularly evasive regarding hardware issues up until now.
Liddell said that he was “disappointed” with the financial implications of the warranty extension, but believed that the improved customer relations are worth the investment.
He also mentioned in passing that Microsoft has downgraded its fiscal year outlook for Xbox 360 worldwide hardware shipments from 12 million to 11.6 million. He said, "We’re happy with that number” in the context of the current industry environment.
“The majority of Xbox 360 owners are having a great experience with their console and have from day one. But, this problem has caused frustration for some of our customers and for that, we sincerely apologize,” said Bach in a statement. “We value our community tremendously and look at this as an investment in our customer base. We look forward to great things to come.”
An open letter from Xbox boss Peter Moore to the Xbox community reads in full:
"You've spoken, and we’ve heard you. Good service and a good customer experience are areas of the business that we care deeply about. And frankly, we've not been doing a good enough job.
Some of you have expressed frustration with the customer experiences you have had with Xbox 360; frustration with having to return your console for service after receiving the general hardware error message on the console.
The majority of customers who own Xbox 360 consoles have had a terrific experience from their first day, and continue to, day in and day out. But when anyone questions the reliability of our product, or our commitment to our customers, it's something I take very seriously.
We have been following this issue closely, and with on-going testing have identified several factors that can cause a general hardware failure indicated by three flashing red lights on the console. To address this issue, and as part of our ongoing work, we have already made certain improvements to the console.
We are also implementing some important policy changes intended to keep you in the game, worry-free.
As of today, all Xbox 360 consoles are covered by an enhanced warranty program to address specifically the general hardware failures indicated by the three flashing red lights on the console. This applies to new and previously-sold consoles. While we will still have a general one year console warranty (two years in some countries), we are announcing today a three-year warranty that covers any console that displays a three flashing red lights error message. If a customer has an issue indicated by the three flashing red lights, Microsoft will repair the console free of charge—including shipping—for three years from the console’s purchase date. We will also retroactively reimburse any of you who paid for repairs related to problems indicated by this error message in the past. In doing so, Microsoft stands behind its products and takes responsibility to ensure that every Xbox 360 console owner continues to have a fantastic gaming experience.
If we have let any of you down in the experience you have had with your Xbox 360, we sincerely apologize. We are taking responsibility and are making these changes to ensure that every Xbox 360 owner continues to have a great experience.
This will take a few days to roll out globally, and I appreciate your continued patience as we launch this program. I've posted an FAQ that should address some additional questions, and we'll update it over the next few days.
I want to thank you, on behalf of all us at Microsoft, for your loyalty."