Xbox Warranty To Cost $1 Billion, Customer Good Will

An anonymous reader writes "The Financial Times reports that Microsoft will take a charge against profits of more than $1bn as it tries to limit the potential damage to its videogames business from a design flaw in the Xbox 360 games console leading to units failing." It's bigger even than that, though. Early this week the news was about Xbox Live's growth, but since yesterday the headlines have taken a turn. Peter Moore has admitted the company is shy of their goal, some 400,000 units short of the 12 million Xboxes they'd planned to ship. These facts combined have made for some grim questions, including the San Jose Merc's Nooch asking why you'd want to buy an Xbox in the first place.

Comments

Re:What again?

[KokorHekkus]

Just wanted to back you up with some figures on how little of an success that Microsofts Home and Entertainment division is so far (products in the division is Xbox 360; Xbox; Xbox Live; CPxG (consumer software and hardware products); and IPTV).

The total operating loss for that division for the years 2004 to 2006 is $3.084 billion (yes $3084 million) on a total revenue that was, for those years, $10.133 billion. So they have to turn that divsions average 30% operating loss into a profit and try to recoup those $3 billion. That will not be easy.

Source Microsofts 10-K filed with the SEC:http://microsoft.shareholder.com/redesign/Edga rDetail.asp?CIK=789019&FID=1193125-06-180008&SID=0 6-00

Re:Well...

[Brickwall]

Just saw an interview with Robbie Bach, president of the entertainment division of MS, on CNBC. Even though the original sales estimate was 13-15 million units, they are not going to meet the downgraded target of 12 million units; 11.6 million seems to be the upper estimate.

Bach did not deny the warranty costs; however, he countered that the number of games per console for Xbox was higher than for any other system, and that even though MS is projected to lose another $315 million this year, he insists the system will be profitable "next year".

Meanwhile, on a personal note, my daughters (10 and 13) got a Wii system last week. They couldn't be happier, and frankly, neither could I. The system is quite amazing to use, and the games are not the "bang bang kill kill" stuff that seem to permeate the Xbox/PS3 world. And, while picking up a copy of Super Mario party pack at Wal-Mart Wednesday, four people approached the clerk asking if there were any Wii systems available. "No", "No", "No", and "No" were her replies. Meanwhile, stacks of Xbox's and PS-3's teetered ominously in the background..

Not all as it seems

[Sibko]

Microsoft stands behind its products and is taking responsibility to repair or replace any Xbox 360 console that experiences the "three flashing red lights" error message within three years from time of purchase free of charge, including shipping costs. Microsoft will take a $1.05 billion to $1.15 billion pre-tax charge to earnings for the quarter ended June 30, 2007 for anticipated costs under its current and enhanced Xbox 360 policies. This is the important part of the press release. If you're xbox fails for any reason that isn't the three red lights of death, then no, you don't have the 3 year warranty. Take for instance, my xbox: On day one, I plug it in, and there's a problem with the a/v connector which results in four red flashing lights. I'm only covered by microsoft's warranty for ONE year. Not three.

Channel Stuffing

[podperson]

So Microsoft's sales projections are off 400,000 units on 12 million, suddenly the world seems less bright?

Better researched articles have pointed out that Microsoft hasn't sold the units it claims to have sold, it's just flooded sales channels with them. Wiis are still selling as fast as they appear in stores.