Microsoft Extends Xbox 360 Warranty, But Does it Really Matter?

[Jeremy Charette]

http://www.digitalmediathoughts.com/images/xbox-360-red-ring-of-death.jpg

Last week, Microsoft announced (http://www.microsoft.com/Presspass/press/2007/jul07/07-05WarrantyExtentionPR.mspx)it was extending the Xbox 360 warranty worldwide to three years, specifically for the "three red rings" failure mode. Media and consumer reaction has run the gamut from praise to damnation. Personally, I'm glad to see Microsoft step up to the plate and acknowledge that they've had widespread problems. I myself am on my third Xbox 360, though the latest one seems to run like a champ. But at this point, does "expanded warranty coverage" even matter?

Microsoft is taking a charge on earnings of over $1B USD in anticipation of console repair costs and refunds. That's no chump change, but read between the lines. The 360 was released over a year and a half ago. Most of the problems (from anecdotal evidence) seem to be with consoles manufactured in the first 6-12 months. Consoles manufactured after Q3 2006 probably have failure rates much more in line with industry standards (3-5%). Microsoft is rumored to be releasing a revised console design later this year, with cooler running chips, lower power consumption, and quieter operation. Presumably this new design will also be more reliable than the first generation of Xbox 360s. Keep in mind that this warranty extension only applies to the three red rings of death. My personal Xbox never suffered this fate, merely locking up and freezing, but with no warning lights.

While this is a great PR move on Microsoft's part, the increase in warranty repairs (and associated costs) is going to be much less dramatic than many are predicting. I see this as too little, too late. The warranty should be longer, up to five years, and should be all-inclusive, not just for "general hardware failure". I'm glad they've stepped up and admitted failure, but the remedy falls short of what I'd like to see. Microsoft has stopped just short of total customer satisfaction. What do you think? Are you satisified or scorned?

[Felix Torres]

I have no grounds for complaint since my 360 has (knock on wood) not misbehaved at all despite a build date of january 06.
As for the 3 year warranty thing, well; consider that, given the rate of previous failures, it takes owners to dec 08, which means that anything defective that was going to fail should have failed by then (including any failure-prone refurbs they might have shipped out) giving them a chance to replace them with fixed units. The cost of replacing with new units, rather than refurbs, is what the charge is about. A five year extension would achieve nothing beyond that and would've likely been just a PR exercise but would've required them to set aside more money (likely never spent). Accounting-wise, this might've thrown the division into the red for FY07 and then require regular restatements of earnings over the following three years and the whole exercise could look like an exercise in tax evasion to some observers. ;-)

(Remember, when you're MS, you never win; folks always find *something* to complain about.)

What I find interesting is that the charge they took is an estimate on the upper limit of their exposure, that they took the entire charge upfront *now* in FY07, and the division still reported a profit *after* the charge, if EETIMES can be believed. ;-)\

http://www.eetimes.com/news/latest/showArticle.jhtml?articleID=201000342

Kinda validates the reports from last fall that they were making money off 360 and suggests price cuts are a clear option.

[cameron]

What I find interesting is that the charge they took is an estimate on the upper limit of their exposure, that they took the entire charge upfront *now* in FY07, and the division still reported a profit *after* the charge, if EETIMES can be believed.

They had to take the charge now. Warranty costs must generally be expensed in the period the product is sold. When you can't do that (as in this case they are extending the warranty) the expense must be recognized immediately.

Microsoft is taking a charge on earnings of over $1B USD in anticipation of console repair costs and refunds.

The $1B should (note I said should) be the amount that Microsoft truly anticipates that these repairs will cost them. Take too small a charge and you may have to incur additional expenses later - take too much and you'll have a liability on your books that isn't a true liability.

[RichL]

I bought my Xbox 360 in May 2006 and it died a week before Microsoft's announcement.

I was absolutely dismayed when it happened. I've invested a lot of time and money into my Xbox. I've bought over a dozen retail games, several XBLA games and lots of accessories. I wasn't sure whether I wanted stay with the Xbox camp if it was going to fail every year, costing me £85 ($170) to repair each time. Suddenly a Playstation 3 looks like the cheap option.

I was delighted when I found out that Microsoft were extending the warranty. I've got the piece of mind that my Xbox 360 should last at least 3 years before I need to spend money to repair it.

However, it's not all roses. I've still got to work from home for a day to wait for the courier to pick my console up. I've still got to pay for packaging. But worst for me is that Microsoft are currently quoting a 20-25 day turn-around on broken consoles in the UK. Apparently their UK centre cannot cope with the level of returns and most are being sent abroad for repair. I'm going to be without my Xbox 360 for a month and that's not good enough.

It's great that Microsoft have finally acknowledged the problems that people have been experiencing, but the console should not have had these design flaws in the first place.

As an aside, retailers are claiming that they're experiencing a 30% return rate on Xbox 360s. For comparison, the figure for the PS3 and Wii are less than 1%. Microsoft needed to acknowledge the inherent flaws with the Xbox 360, otherwise no-one would have bought the Xbox 720.

[Jason Dunn]

I feel quite fortunate that my Xbox is still working great... :D

[Chris Gohlke]

A coworker called in this morning to get their red ringed 360 fixed. He was told that the red ring was caused by him plugging the 360 into a surge suppressor. They told him that the 360 had one built in and that plugging it in to another would cause problems. Anyone else heard similarly stupid stories from the 360 support people?