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Microsoft Takes Charge on Xbox Snafu

Microsoft says it will take a $1.05 billion to $1.15 billion pre-tax charge to its second-quarter earnings to cover the anticipated costs of replacing defective Xbox 360 game consoles that have been rendered useless due to "general hardware failure."

While the video-friendly Xbox 360 has been a success for Microsoft with some 10 million units sold since its November 2005 launch, an unspecified number of units have experienced a hardware failure, indicated by three flashing red lights, that leaves them inoperable. So Microsoft is expanding the warranty coverage for such a failure from one year to three years to cover such failures, after investigating what it called an "unacceptable number of repairs to Xbox 360 consoles."

The company says it will 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 also says it will retroactively reimburse customers who have previously paid for repair expenses related to the three flashing lights error message. Other aspects of its Xbox 360 warranty policy remain unchanged.

"The majority of Xbox 360 owners are having a great experience with their console and have from day one," said Robbie Bach, president of Microsoft’s Entertainment & Devices Division, in a statement. "But, this problem has caused frustration for some of our customers and for that, we sincerely apologize. We value our community tremendously and look at this as an investment in our customer base. We look forward to great things to come."