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Xbox Warranty To Cost $1 Billion, Customer Good Will
Posted by
Zonk
on Fri Jul 06, 2007 08:29 AM
from the pricey-proposition dept.
from the pricey-proposition dept.
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.
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Microsoft Acknowledges 360 Issues, Extends Warranty to 3 Years 205 comments
RamblinLonghorn writes "Microsoft has announced that they are extending the warranty for all Xbox 360s to 3 years. This appears to be entirely retroactive and that 'those who have already paid for such repair charges can expect reimbursement checks for the amount of their console repair.' It seems as though Microsoft is accepting the blame for the hardware malfunctions, but it is worth noting that this warranty modification only applies in the 'Red Rings of Death' situation."
[+]
Microsoft Readies Cheaper 360 249 comments
Officially Microsoft is putting on a brave face, saying they won't drop the 360's price even in the console's weakest market: Japan. Just the same (probably in anticipation of Sony's PS3 price drop), the San Jose Mercury news says the company is secretly working on preparing a lower cost Xbox 360 SKU. Called 'Falcon', it's a cost-reduced system using 65nm chips instead of the at-launch 90nm electronics. This ties right into Michael Pachter's expectation of such a cut; it should be noted he doesn't see the DS or Wii prices moving any time soon. Related to all of this, Newsweek's LevelUp blog has two great interviews today: a Peter Moore discussion harkening back to last week's warranty announcement, and a chat with Jack Tretton about the price cut and the 360's hardware issues.
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Xbox Division Posts Loss of $1.9 Billion 150 comments
Just when reduced manufacturing costs were beginning to turn Microsoft's Xbox division around, the weight of the warranty guarantee came crashing down on the company. The Xbox division of Microsoft Entertainment posted a loss of $1.89 billion for the fiscal year. Overall the Entertainment division did well, as sales of the Zune, consoles, and Xbox titles helped push revenues higher. Just the same, as Next Generation reports: "The fourth quarter in the EDD was down, with operating losses increasing 183 percent to $1.2 billion, again due to the billion-dollar-plus warranty charge. Revenues dropped 10 percent from a year ago to $1.16 billion due specifically to 'decreased Xbox 360 console sales.' Microsoft shipped 700,000 consoles during the quarter compared to 1.8 million for the same period a year prior."
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Good move (Score:5, Insightful)
Anyway, this is a great decision on their part. It's nice to see that they acknowledge the problem and are willing to stand behind their product. Nothing negative about that. And they're going to reimburse people who've previously had the repairs done.
This is a good thing, and I'll applaud them for doing the Right Thing (tm).
Not that I'd buy an XBox (hell, all I have in the house is an Intellivision and a Dreamcast...), but it's still good to see them do what's right.
Re: (Score:3, Insightful)
This still doesn't address the fact that the 360 has a faulty design! I don't know about anyone else but every console system(pretty much anything to hit the market) I have owned is still working today minus an Atari Jaguar. I expect when I buy a system for it to work the life of the console on the market. The Xbox 360 is going to be around more than the 3 year
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They've added a much improved heatsink to the GPU [xbox-scene.com], They've reinforced the PCB around the processors to keep it from warping [llamma.com], and they should be pumping out the 65nm chips any day now (for all we know they already are).
It will be much less costly for them to actually fix these errors than to pay for additionally two way shipping and replacement of 1/4 to 1/3rd of everything they produce.
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Why Buy A 360? (Score:4, Insightful)
That said, dismissing an entire console because of technical issues is pretty crass to me. Not only have there been several wholly worthwhile titles released for the system already (Crackdown, Overlord, plus tons of multi-system releases), but this summer, fall and next spring bear an avalanche of awesomeness. Bioshock, Mass Effect, that Halo thing, Two Worlds
I guess I understand where he's coming from, but I feel reluctant to dismiss great games so casually. Ultimately, it all comes down to the games, and the 360 has some really great offerings.
Re:Why Buy A 360? (Score:4, Funny)
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So I'm waiting until
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It's all about the games (Score:4, Insightful)
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Obvious answers (Score:5, Insightful)
Unless my maths are wrong, they're 3% shy of their target. Which doesn't seem to be too shabby.
Ummm, because the Wii hasn't got the graphics capability of the XBox? The PS3 and the Wii combined don't have the half of the games portfolio that the Xbox has? That the online gaming for the Xbox is way ahead of the other consoles? That the PS3 costs double that of the Xbox?
I don't own any console but this whole piece just seems to be pointless Xbox bashing to me.
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Double that of the Xbox? (Score:2)
Way to start
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Microsoft might be 3% short of where they want to be, but their sell through is 400,000 units short of what they thought they would sell in fiscal year 2007. That's at least 25% short of their goal for the year (based on having 10.4m sold in 2006).
I agree that the Xbox 360 has a better portfolio of games, but your comparisons with the Wii or PS3 aren't completely accurate. I haven't seen a Wii game yet that rivaled the better games of the original Xbox, regardless of what processing power it may have.
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"Your bias is showing."
Costing customer good will? (Score:5, Insightful)
I mean, aside from shipping free 360s to every gamer on the planet...which seems a little unreasonable.
I'm not one to throw out accusations of spin too often, but trying to present this as some sort of disrespect, slam, or screw job by MS seems a little unwarranted.
Re: (Score:3, Interesting)
MS may be late to acknowledge the issue - no later than I'd expect any major corp to be, but late regardless - but if retroactively extending the 90-day warranty to three years isn't a move to earn customer good will, I don't know what they could do that would.
I wholeheartedly agree. I experienced the dreaded 3 red rings just over a year after I had bought my console (I got it the first week it was released). At the time it broke, the warranty was only 3 months on it. They then extended it to one year shortly after that, but I was still out of luck because it was over one year. I was not thrilled with shelling out $140 to get it repaired (and $20 to ship it to them only to find out that the day after I shipped it they were now paying for shipping both ways a
Good will (Score:4, Insightful)
Crap - have to eat crow (Score:3, Insightful)
So I wonder how MS will fix this? Yes they will fix the design flaw but I think their only next move is too replace all the 360s out there. Upgrade each unit by the next step up (core users gets premium , premium users get elite, and elite get a free game + a fixed unit).
I am also curious to know if this move will bring a class action lawsuit against MS (I'm guessing yes) and if those with one can simply say I am returning this for full refund even if its 1 year later because it's a known design issue. Could I call up my credit card company and say the product I was sold was a lemon I want to reverse charges to *Insert where bought here*, etc.
Now the Nooch article is just a troll. Why would anyone want the 360. Games buddy. Seriously he points to the ps3 as much better but doesn't offer a bench mark to compare them. Based on games alone (right now) the 360 wins. Want a built in blu ray then the ps3 wins.
Either way MS is in some crap for this one. My 360 has not given me one issue yet this pisses me off.
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True, I'd absolutely love for Microsoft to upgrade me to an Elite for my trouble, but those things use a whole different motherboard. You think MS is going to just chuck all 10M existing units in the trash for the asking? That would cost them a lot more than $1.15B.
Customer goodwill? (Score:5, Insightful)
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Because they are not doing it out of good will but for damage control (e.g., to avoid class action). Plus, it makes it known that they were bullshitting when they repeatedly claimed that the 360 doesn't have a higher than normal defect rate [mercurynews.com]
As for warranties, I'd much rather have a 15 month warranty on a product with about a 1 percent defect rate than a 3 year warranty on one that has a defect rate that is somewhere less than 50 percent.
This is Dr. Evil's doing (Score:5, Funny)
What again? (Score:4, Insightful)
So Microsoft's sales projections are off 400,000 units on 12 million, suddenly the world seems less bright? They've made bucketloads of money (although the warranty extension might cause some trouble). The negative editorial linked in the article seems light on reasoning and heavy on opinion, but does all of this really warrant grim questions? It's not like the console or Microsoft is going to go under because they had to extend the warranty on the hardware. It's not like this thing is the Phantom or NeoGeo or something.
Re:What again? (Score:5, Insightful)
Yes, it's a major problem, especially for a company that is very used to exceeding their goals.
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Re:What again? (Score:5, Informative)
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/Edg
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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.
CNN has an article [cnn.com] about the story. From it:
Bach said the new warranty would not impact the Xbox division's plan to turn a profit in fiscal 2008, which started this month.
Bach is the president of Microsoft's entertainment and devices division. Granted, "plan" is no guarantee, but they are expecting to make a profit this year.
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Channel Stuffing (Score:3, Informative)
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. [informationarbitrage.com]
Costing Customer Good will? (Score:3, Insightful)
Skip it (Score:2)
Yea, I went there and the article title read with huge letters: "XBOX 360 - just skip it"
I wasn't very sure if he means skip the console, or skip the article, so I skipped the article.
Don't worry about tech issues (Score:3, Insightful)
Such Bullshit (Score:5, Insightful)
Anyway, what is the reason you buy any console? It's the games. I don't buy a console to play music, watch video, or IM. I buy one because I want to play the new high end games and I cannot afford the bleeding edge of high-end PC gaming. Yeah, the Wii is fun for minigames, but not even in the same league as PCs, 360, or PS3. To suggest that it is an alternative to them is totally bogus. I have a Wii that is a lot of fun with company, but not much fun otherwise. It has weak graphics, and it's games by and large have very little depth. It provides a gaming exerience much different than that of the other consoles. For those that want graphics, depth, and powerful AI, the Wii is no substitute.
Why buy a 360? Once again, it's the games, and the cost. Want to play Halo 3, you're going to need a 360, or ruin your powerful PC with Vista. That's a no-brainer. Want to play Dead Rising, Ace Combat 6, Gears of War, Mass Effect, Forza 2, Bioshock, etc.? You're gonna need a 360 for most of them, or PC with a graphics card that costs more than a 360.
The PS3 seems to have plenty of power, but no games to really take advantage of it. Oblivion is the best game the PS3 has, and it plays just as well on the Xbox, and even better on the PC. Other than that, the PS3 has a long list of lackluster titles. With better titles, the PS3 would be a better system, but it keeps missing out on exclusives that really hurt it.
Finally, you have online service and achievement points. Being able to see all your friends on and invite them into a game while they are watching a movie or playing another game is pretty cool, as well are the game demos and extra content you find on Xbox Live. And although you would think those achievement points are just a gimic, and they are, they are a very compelling one.
The 360 has the games and online. Until PS3 can at least come up with some good games, it is a high-priced movie player. If you can afford PC gaming at that level, neither console is appealing.
What else does it take?? (Score:2)
Why buy a 360? A great library of games far better than the competition and a price that far lower (please dont argue the symantecs of a bluray player that most of us dont care about, im not buying the hd-addon for the 360 either).
so far most games just look better. Look at the EA sport
Re:What else does it take?? (Score:4, Insightful)
That's good customer service, yeah!
So as a consumer, how should I see this?
A) No worries, it won't happen to me!
B) It's okay, I'll only be without my console for a week to a month or so.
C) Microsoft only admits problems once the become a PR nightmare. If I buy their next product, I'd best be sure to wait until it's stable.
People are -already- doing C with their software products. 'Wait for SP1 before you buy Vista.' etc. MS even recently told people NOT to do that specifically, admitting that it's a known action people are taking.
How much more will it take before people just start referring to MS as the 'wait before you buy' company?
No, there's plenty of 'customer good will' lost here. The only way to engender good will is to be proactive, no reactive. (ie: Don't wait for 1/3 of your customers to complain before believing them.)
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12 million? (Score:3, Funny)
400K (Score:2)
Duh. Der. D'oh. (Score:2)
San Jose Merc's Nooch asking why you'd want to buy an Xbox in the first place.
Uh, because of piles of great games, both present and upcoming? Is this so difficult to understand? Are journalists rerally as dense as they seem to be? It's the games, games, games. Just started Overlord, and haven't laughed so much at a game since Psychonauts.
Some of us look at game consoles as entertainment and not as a religion where holy wars must be waged against the other consoles. If the Wii and PS3 get enough exclusi
Profits. . . (Score:3, Insightful)
Now more than ever the Microsoft assimilation jokes should be going on but apparently everyone's okay with Microsoft being devious as long as it's in the name of Halo. You don't burn money like they are without the goal of monopolization. Microsoft has done nothing but exploit the weaknesses of capitalism and the people who are aware of it aren't nearly as vocal as they should be. This is why they have their Windows monopoly, their Office monopoly, and why they have a chance of monopolizing "home entertainment." It's because the Slashdot geeks who are supposed to be boycotting this shit and supporting non-evil (yeah, I said evil) alternatives are too busy playing Halo on their 360 or Half-Life on the Windows PC.
It doesn't piss me off when Joe-Shmoe-I-don't-know-a-HardDrive-from-HighDefin
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Not all as it seems (Score:4, Informative)
Who cares about the freaking brand? (Score:3, Insightful)
Microsoft went too cheap this time and now they have to make amends, but so what? It's not like Sony or Nintendo couldn't be the next in line for that since they all do things like it if they believe they can get away with it and still have happy customers.
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I'm glad they're going to refund my $140, though. I hope the one I recently got lasts longer than the last three.
nope (Score:2)
They knew full well of the heating problem and all that prior to releasing. but its like the motto : better ask forgiveness than permission.
Whats important is catching the user base and that they did. The $1b expense is not gonna hit them so hard in the long run.
Re:nope (Score:5, Insightful)
It's going to take a lot longer than that.
Before this announcement, they were slightly more than $5 billion in the hole on the Xbox and Xbox 360 together. Now they're approximately $6.5 billion in the hole.
That's a huge amount of money. That's like an entire year's worth of MS Office sales (not profit, sales).
What they're talking about in FY08 is profits going forward. But the Xbox program will not be profitable on the whole for many years, if ever. And it won't even be profitable going forward if stuff like this keeps happening.
What I think is 'odd' [which applied to MS means I think they are lying] is that there was no "pattern' to these XBOX 360 failure for 1.5 years, but one finally appeared in the last 0.25 years. This would make sense IF only a limited batch of them were faulty, but MS extended the warrantee for all 360's, and not just for a batch of 360's within a range of serial numbers.
It must be a design flaw, which the article summary got right (this is one of the few sites I've seen with the guts to say it).
Look at it this way. A certain number of units of any piece of electronics are always going to be defective, no way around it. The average is 5%.
MS is now tacitly admitting that their defect rate is well above 5% - for it to cost them $1.3 billion with only 11 million systems out there, the defect rate must in fact be close to 100%. But even if they're counting on fixing some more conservative number of systems - say 30% - that's still well above the industry average. However you look at it, they're admitting to an "unacceptable" number of defective units, and that can only happen if there's something about the design that's causing it to happen.
What that means is that all Xbox 360's are at risk. It doesn't matter when you got yours; it has RROD potential today, tomorrow, and every day after that. That's the case because all 360's are designed the same way - there hasn't yet been a significant change.
I am curious to see what the 360's made after this announcement look like, side by side with a pre-announcement system. If there is no change, then I think it's safe to say the flaw still exists - and I sure wouldn't buy such a system. If there *is* a change, though, then I think we'll have a clearer idea of what the flaw was... but it'll still take time to know whether or not the fix was effective.
Either way, I'd put off buying a system for at least six months at this point. Let the old units work their way through the system, wait for the new units to prove themselves.
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Re:nope (Score:4, Interesting)
No one seems to be connecting the dots between this and the articles a month or two back saying that returned 360s were coming back with very different heat sinks inside them. There were some even bigger problems with the 360s sold right around launch - my guess is that MS thought they had already fixed the problem and it took them a while to realize they really didn't. So perhaps a few months ago they acted on this, came up with a fix, started applying the fix to units they repaired (and perhaps new units) and once they were satisfied they had fixed the issue they announced this - knowing that the size of the hit is limited to some percentage of 360s already out there and that new units (and repaired units) are not going to have this high failure rate.
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Re:Well... (Score:4, Informative)
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..
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