Print 85 comment(s) - last by Timeless.. on Jul 8 at 5:38 PM

Kristopher Kubicki -- Red Ring of Death
Microsoft will take a $1 billion charge to fix Xbox 360 consoles

Microsoft's Xbox 360 was the first to market in the "next generation" console race and is leading in total sales so far. Nintendo's Wii has been selling at a breakneck pace in the United States, but the Xbox 360 has held a comfortable lead over the Sony PlayStation 3.

Furthermore, Microsoft has a rather palatable portfolio of titles for gamers to choose from along with its robust Xbox Live online service. Microsoft has even reached out to the community with its XNA Game Studio Express developmental software.

But there is one pitfall that Microsoft has not been able to get away from with regards to the Xbox 360: the infamous Red Ring of Death (RROD). The RROD has been the perennial thorn in the side of the Xbox 360.

In September of 2006, Microsoft offered free repairs to customer that purchased Xbox 360 consoles manufactured before 01/01/2006. Microsoft noted that the reason for the generosity was due to "higher than usual number of units coming in for repair."

Three months later in December 2006, Microsoft decided to boost the Xbox 360's warranty to a full year. Customers who had already paid for repair service were mailed checks for the full repair costs by Microsoft. "Customer satisfaction is a central focus and priority for the Xbox 360 system," said Jeff Bell, corporate VP of Global Marketing for Microsoft's Interactive Entertainment Business at the time of the announcement.

Despite Microsoft's best efforts, Xbox 360s afflicted with the RROD continued to roll in for service. In April 2007, the company decided to bulk up its warranty services by offering free shipping for consoles in and out of warranty. Microsoft also announced that customers who sent in consoles under warranty would receive an additional 90 days of warranty service -- in addition, consoles that were sent in for service when out of warranty would be returned with a fresh one-year repair warranty.

At the time, the company also announced faster repair times for consoles (within five business days) and the addition of more staff to handle customers’ needs.

All the while, Microsoft remained mum as to the actual problems with the Xbox 360 and declined to give a failure rate for the console. In May, Microsoft's Peter Moore said that “I can’t comment on failure rates, because it’s just not something  -- it’s a moving target. What this consumer should worry about is the way that we’ve treated him. Y’know, things break, and if we’ve treated him well and fixed his problem, that’s something that we’re focused on right now."

Most had speculated that the problems related to Xbox 360s becoming afflicted with the dreaded RROD was because of lead-free solder joints on the GPU and poor cooling within the case. Xbox 360 consoles with upgraded cooling hardware began appearing in Europe in early June. Microsoft responded with "no comment."

Earlier this week, DailyTech reported that the failure rate for the Xbox 360 was as high as 33 percent according to some retailers -- Microsoft had previously stated that the failure rate for the Xbox 360 was in the three to five percent range. “The real numbers were between 30 to 33 percent,” said former EB Games employee Matthieu G. “We had 35 Xbox 360s at launch. I know more than half of them broke within the first six months (red lights or making circles under the game discs). Two of them were dead on arrival.”

The RROD problem is so bad that some companies have even refused to repair the console. “This problem is endemic on the Xbox 360 console and the volume has made this repair non-viable," said Micromart, a UK-based game console repair company. “The work we had done to the console lead us to believe that basically it was a fault with the motherboard and not something that could be resolved easily. And it wasn't going to go away,” continued Micromart's Jeff Croft.

Although it doesn't appear that Microsoft has made any changes to stop the Xbox 360 from coughing up the dreaded RROD, the company announced today that it will set aside $1 billion USD to fix "an unacceptable number of repairs."

"This is just one of those things that happens when it happens," said Microsoft entertainment and devices division president Robbie Bach. "We reached our conclusion early this week and because it's a financially meaningful issue we had to announce it immediately."

Peter Moore remarked that "The majority of customers who own Xbox 360 consoles have had a terrific experience from their first day, and continue to, day in and day out." He was also humble enough to admit that "Some of you have expressed frustration with the customer experiences you have had with Xbox 360; frustration with having to return your console for service after receiving the general hardware error message on the console."

As a result, Microsoft is extending warranties of Xbox 360s afflicted with the RROD to three years from the date of purchase. The company will also retroactively reimburse repair costs for anyone that sent in their Xbox 360 for the RROD.

"In doing so, Microsoft stands behind its products and takes responsibility to ensure that every Xbox 360 console owner continues to have a fantastic gaming experience," said Moore. "If we have let any of you down in the experience you have had with your Xbox 360, we sincerely apologize. We are taking responsibility and are making these changes to ensure that every Xbox 360 owner continues to have a great experience."

Microsoft’s generosity is commendable, but until the actual cause of the problem is identified and taken care of, this may all be for naught.

Comments     Threshold

This article is over a month old, voting and posting comments is disabled

MS's estimate on RROD
By netrindomain on 7/5/2007 10:50:13 PM , Rating: 2
so this is what we know from Microsoft:

-there are a total 11.6M Xobx 360s sold
-the charge on extended warrantee to 3 years cost about $1.1B
-MS charges out-of-warrantee RROD repair for $140

I know the 1.1B sum is complicated, but there must be a quick and rough way to calculate MS's official RROD rate. Anyone?

RE: MS's estimate on RROD
By energy1man on 7/5/2007 11:48:16 PM , Rating: 2
First you probably can't use the $140 repair charge. It no doubt costs Microsoft more to service than they are charging. If you were to use that rate., you would get 1.15 billion divided by $140, which would come out to about 8.2 million repairs. This would cover two of the three years of warranty service. The first year of warranty repairs would have already been accounted for. Assume the 8.2 million is 66% of the total, you would get about 12.4 million repairs or more units than they have sold. Whatever the defect rate is, it is not that high. An accurate calculation would depend on Microsoft's true cost for the repairs. $300 would put the rate near 48%. $400 would put it near 35%.

RE: MS's estimate on RROD
By netrindomain on 7/6/2007 2:14:16 AM , Rating: 2
At $300-400, we are talking about the RETAIL price of a brand new 360, which is much too high for the cost of repair.

I suppose it's also important to find out whether the 1.1B covers any design cost incurred in improving the thermal solution of current product. Obviously also covers the additional warrantee on units "projected" to be sold over the entire product cycle (which also should be somewhat offset with the new .65 process / board), and additional (cough) administrative costs.

Anyway, thanks for taking the 1st shot. 1.1B IS a lot of $$, and by doing the math it shows that DT wasn't far off with its 30% failure rate report.

RE: MS's estimate on RROD
By darkpaw on 7/6/2007 10:09:11 AM , Rating: 2
For some of their international customers they are already paying the cost of a new xbox just in the shipping alone.

RE: MS's estimate on RROD
By geddarkstorm on 7/6/2007 11:54:46 AM , Rating: 2
No way. I've already dealt with shipping heavier items than an X-box 360 over seas (from the states to New Zealand) and it was only 45 bucks (which is a lot for shipping). 200-300? Nope. Not to mention they undoubtedly have more than one distribution center around the world, or they'd have to charge double to the European market after they shipped all their X-boxes there, by that logic ;)

RE: MS's estimate on RROD
By darkpaw on 7/6/2007 12:00:01 PM , Rating: 2
Sure postal services will run $50. From posts on other xbox failure stories people were reporting that the international shipment boxes were coming from DHL. Having worked in a warehouse for several years I know that even envelopes cost $50 to ship DHL internationally, and they will bill by dimension over weight so even for the empty boxes MS will be paying a good amount.

The company I worked for got really good shipping discounts, and I'm sure MS gets much better then that, but if they are using an express service for shipping the boxes out and back they are probably paying $100-150 per direction.

RE: MS's estimate on RROD
By geddarkstorm on 7/6/2007 12:08:40 PM , Rating: 2
I don't see why they would go with an expensive service if there were a cheaper one. UPS was the one I know the cost for shipping a 20" monitor with from one side of the world to the other. I have a feeling they would pay around 100-150 round trip, not per direction. That per direction is unreasonably high, unless we got actual figures, and are out of line with the actual figures I know from UPS. If DHL was that much higher than UPS, I don't see how they could compete with the latter.

That said, there are still repair centers in more places around the world than the US. And a lot of all this is in the US. So international shipping rates are pretty much moot--they would rarely have to do so verses domestic (or intra EU) shipping.

RE: MS's estimate on RROD
By energy1man on 7/6/2007 1:55:06 PM , Rating: 3
Found this on bloomberg:

Enough money to repair 2,500,000 consoles.

This would put the repair costs between 420-460 with the range of 1.05-1.15 billion dollars.

RE: MS's estimate on RROD
By netrindomain on 7/6/2007 11:12:12 PM , Rating: 2
Thanks for finding the quote.

2.5M out of 11.6M consoles is roughly above 20%, for repairing RROD between year 1 to year 3 by definition.
Factoring in the repair costs of year 1, I suppose that is still within the reported 25-33% range.

as for the repair cost per unit, I still don't buy the $400+ bill as there certainly will be other expenses such as re-designing the board, which by definition also should be part of the "solution" for these failures.

Anyhow I am glad we are going through this exercise instead of yapping "oh 1.1B is a just pocket change" for MS.

RE: MS's estimate on RROD
By geddarkstorm on 7/6/2007 12:04:58 PM , Rating: 2
We must also take into account multiple resends of the same unit, which could easily push the total volume of units through the roof while keeping the number of unique units lower.

Since we know Microsoft preferably sends back refurbished, not new units, we know that the cost for repair is lower than the cost for making a new unit.

Shipping through has to be taken into account if Microsoft is paying for it, which could ratchet things up by another 50 bucks for them depending on the location of the nearest repair/distribution center relative to the customer. Still, 300-400 for repairs is far too high. 200 is probably the better estimate, but still kinda high. The 1.1B set aside is not what has cost them so far and is simply a preventative, so we can't use that exactly for raw numbers, but in all it is in line with a 33% failure rate. Remember, repeat offenders cost them the same each time, so that could inflate the repair costs to look like a 50% or higher failure rate.

If I had an investor's portfolio on the 360, it'd be much easier to calculate their failure rates, since those usually show the costs to make the unit and all other associated costs, and the profits so for. You can't hide info from or lie to your investors. Home Depot tried and they were skinned for it.

RE: MS's estimate on RROD
By netrindomain on 7/6/2007 11:23:09 PM , Rating: 2
I agree that s a manufacturer if your average repair cost, including the expenses of shipping and labor, is higher than your retail price of the product, then you are in big trouble.

However, don't expect companies to be THAT honest with investors. I'd go with iSuppli figures with the BOM. It has been posted around before.

RE: MS's estimate on RROD
By EndPCNoise on 7/6/2007 12:37:44 AM , Rating: 2
The next big question/problem to calculate, once you have calculated the defect rate, is how long before the $1.15 billion dollars (set aside to cover warranty repairs) is exhausted?

RE: MS's estimate on RROD
By energy1man on 7/6/2007 1:09:29 AM , Rating: 3
Assuming Microsoft has fixed the problem, or at least drastically cut it's incidence, and accurately knows it's true defect rate, it should last until the last of any sold units are out of warranty. If for someone reason their calcs are off, they mint enough money to make up any difference.

The one thing to bring from the 1.15 billion is the 3-5% defect rate is very underreported. Take the high end at 5% that would be 580,000 units to fail or expected to fail(there are working units that at some point will fail), 1.15 billion for repairs would come out to nearly $2000 per unit. Not very plausible.

"My sex life is pretty good" -- Steve Jobs' random musings during the 2010 D8 conference

Copyright 2016 DailyTech LLC. - RSS Feed | Advertise | About Us | Ethics | FAQ | Terms, Conditions & Privacy Information | Kristopher Kubicki