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Originally published July 6, 2007 at 12:00 AM | Page modified July 6, 2007 at 2:05 AM

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"Unacceptable" Xbox failure rate forces warranty extension

Ken Thomson, once an avid video gamer and now a father of three, is waiting for the family's Xbox 360 to return from the repair shop. For the third time...

Seattle Times technology reporter

Xbox 360 warranty

Microsoft is extending to three years the warranty covering a "general hardware failure" in its Xbox 360. The failure rate in recent months became "unacceptable," executives said, but declined to specify how many of the 11.6 million consoles sold to date have failed.

Coverage begins on the date of purchase. It is retroactive, and Microsoft will reimburse Xbox 360 owners who have paid to repair the general hardware failure. Shipping costs are included. Other warranty policies remain the same.

More details on the Xbox 360's warranty policies are available at www.xbox.com/warranty.

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Ken Thomson, once an avid video gamer and now a father of three, is waiting for the family's Xbox 360 to return from the repair shop. For the third time.

The Auburn man bought the Microsoft video-game console in August and has since encountered the so-called "red ring of death" — an indication of a general hardware failure — on the original machine, its replacement and the replacement for the replacement.

"My Super Nintendo went through college with me," Thomson said via e-mail while waiting on hold with Microsoft's Xbox customer support Thursday. "Even after having multiple beers spilled on it over the years, it never failed. Neither did my [PlayStation 2]."

In response to what Microsoft is calling an "unacceptable" failure rate during the past several months, the company is extending the warranty coverage for the Xbox 360 from one year to three years.

The company, facing the risk that the problems could undermine one of its burgeoning brands, pledged to pay to repair or replace any Xbox 360 that has experienced a general hardware failure, indicated by three red blinking lights on the console. In addition, Microsoft will reimburse customers who had to pay for out-of-warranty repairs to fix the failure.

The Redmond company expects the cost of the extended warranty program will shave about $1 billion off its pre-tax earnings for its most-recent quarter.

Microsoft executives think recent work to re-engineer the $299 to $479 video-game console will solve the problem. The extended warranty should also give customers and potential customers peace of mind, said Robbie Bach, president of the Microsoft Entertainment and Devices Division.

"We've already made improvements to the 360 console that will reduce the occurrence of these issues going forward," he said.

The Xbox 360 is Microsoft's second entry into the video-game console business, where it competes chiefly with the Sony PlayStation 3 and Nintendo Wii.

Microsoft has shipped 11.6 million units — slightly shy of its goal of 12 million by June 30 — since launching the game system Nov. 22, 2005.

Microsoft would not disclose the failure rate for the Xbox 360, which also had supply shortages resulting from manufacturing hiccups in its first few months on the market.

"Suffice it to say that with a billion-dollar charge and the focus we're putting on this that it's a meaningful number," Bach said.

Billy Pidgeon, program manager for consumer gaming markets at industry-analysis firm IDC, said the extended warranty is a good move by Microsoft because it may help customers feel secure about buying an Xbox 360, potentially leading to more console sales and more opportunity to increase revenue streams from related businesses.

Profit still expected

The cost of the warranty program should not keep the company's Xbox unit or the broader Entertainment and Devices Division from turning a profit for the first time during the company's current fiscal year, which began Sunday, Microsoft Chief Financial Officer Chris Liddell said.

Microsoft entered the video-game business in 2001 with the original Xbox and has invested at least $5 billion since then, according to some analyst estimates.

Executives made it a goal that the venture would be profitable this fiscal year.

Bach said the overall Xbox business is in good shape.

The "attach rate" for the Xbox 360 — a measure of how many games are sold for each console — was 5.9 in May, a record for a console at this point in its life cycle.

Game sales can be the most profitable part of the video-game business.

Microsoft, Nintendo and Sony are set to trot out their games for the coming holiday shopping season next week at the Electronics Entertainment Expo in Santa Monica, Calif. Bach is confident going into the event.

Multiple failure causes

Microsoft has been tight-lipped about what specifically caused the failures.

Bach said there were multiple causes, including design issues, and did not blame Microsoft partners who provide components and assemble the Xbox 360.

"It's really our responsibility, not anybody else's," Bach said.

Some game-industry analysts noted that the turnaround time for repairs can stretch to multiple weeks and questioned how patient Xbox owners would be for their machines to be returned.

"A game machine is like a television to a lot of people, and to have to mail it in and wait two weeks to get it back ... that kind of sucks," said Ted Pollak, a senior game-industry analyst with Jon Peddie Research.

Thomson, the Auburn man, said he shipped off his third Xbox 360 for repairs three weeks ago.

"Having the Xbox gone for three weeks is not life-ending," he said. "You do feel like a bit of a dupe knowing you paid nearly $600 for something you can't use for the third time and it's less than a year old."

Repair, return times vary

Peter Moore, Microsoft's corporate vice president in charge of the Xbox business, could not provide the average time it takes to repair and return the console, noting that it depends on how far it must be shipped.

"We're going to do everything in our power to expedite that because I do know how painful it is for people to be without their box," Moore said.

Some customers have complained that Microsoft has been too slow to reimburse them for repairs that were subsequently covered by the warranty. Microsoft had extended the warranty from 90 days to one year in December.

Moore said the refunds should be issued automatically, though it might take "a few weeks."

Benjamin J. Romano: 206-464-2149 or bromano@seattletimes.com

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