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Sat, Nov 21, 2009 - 08:52 AM EST  —  AAPL: 199.92 (-0.59, -0.29%)  |  NASDAQ: 2146.04 (-10.78, -0.5%)

How Xbox 360 ‘red ring of death’ debacle cost Microsoft $1.15 billion last year alone
Wednesday, November 12, 2008 - 01:06 PM EST

"The infamous Xbox 360 'red ring of death' (indicating a failed unit) has caused Microsoft - and its customers - untold pain in the three years since the console's launch in 2005, and cost it $1.15bn (£738m) last year. Microsoft has never said publicly why the console was plagued with faults: it seems that poor production quality was at the heart of the failures - an all-round problem with no single cause except impatience on the company's part as it tried to become the leader in videogame consoles," Dean Takahashi reports for The Guardian.

"With the first Xbox, the company lost $3.7bn (£2.3bn) over four years, mostly because costs of the box - particularly its hard drive - were too high. Bill Gates didn't really care about the losses; that was simply the ante for getting into an exciting new business. But Steve Ballmer, who took over from Gates as chief executive during the first generation, really wanted the Xbox business to be profitable second time around," Takahashi reports. "Even though early testing showed that production machines had flaws, Microsoft didn't delay the launch because it believed the quality problems would subside."

"Some of the defects were latent, potentially not showing up for some time after the machine was used. Up to 50% of all defects can be latent. And production yields - the number of machines coming off the production lines that passed testing - were low. In August 2005, the machines' aggregate defect rate - from Microsoft's contract manufacturers Flextronics and Wistron, in their factories in China - was allegedly just 68%" Takahashi reports.

"In a memo dated August 30 2005, the team reported overheating graphics chips, cracking heat sinks, cosmetic issues with the hard disk and the front of the box, underperforming graphics memory chips from Infineon (now Qimonda), a problem with the DVD drive - and more," Takahashi reports. "Microsoft has never disclosed its actual return rates. But according to data obtained by VentureBeat, the total number of returns climbed above 1.2m consoles early last year. That is a huge figure, considering Microsoft had only shipped 11.6m consoles to stores by the time of the writeoff in mid-2007."

"Nintendo's Wii has outstripped rival consoles around the world, having sold some 35m machines since its launch at the end of 2006. Microsoft has sold about 22m Xbox 360s since its 2005 launch, while the Sony PS3, which came late to the party with a European launch in March 2007, has sold 16.6m consoles around the world," Takahashi reports.

The full heartwarming article - recommended - here.

[Thanks to MacDailyNews Reader "Denis" for the heads up.]

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Nov 12, 08 - 01:15 pm Comment from: KillBill

Just red ringing Microsoft...

Nov 12, 08 - 01:16 pm Comment from: Luke Skywalker

What does this story have to do with politics?

Nov 12, 08 - 01:25 pm Comment from: jarrettdailynews

hilarious, politics.

Nov 12, 08 - 01:30 pm Comment from: Macaday

So the behemoth spent all that effort and money - and then came last in the race?!

Pathetic.

More enjoyable destruction of MS here:

http://www.macnightowl.com/2008/11/microsoft-remains-divorced-from-reality/

Nov 12, 08 - 01:31 pm Comment from: Cubert

I wonder if the "Lemon Law", originally written for poorly made automobiles, could be used to sue Micro$ucks for this?

Nov 12, 08 - 01:42 pm Comment from: G4Dualie

If Microsoft ever built a computer... yeeesh.

I know I was grateful the program. Mine was a 2006 xmas gift and it blew a tire six months later. They turned it around in Texas and had it back to me in 8 days. I have two years left on the adjusted warranty.

Far Cry 2 sucks like a pool drain.

Nov 12, 08 - 01:48 pm Comment from: Yimmie

I bought my first Xbox and had to return it very soon after. The disc drive stopped working. Got my replacement and used it for about 6 mos before red rings of death. Then got it repaired and 7 mos later got red sings of death again on the same machine!

XBox 360 is a POS. If it wasn't for Halo I would have one.

Nov 12, 08 - 01:54 pm Comment from: G4Dualie

I wonder if the "Lemon Law", originally written for poorly made automobiles, could be used to sue Micro$ucks for this?

How could it, if you only have one model?

Look at how quickly Saturn rose to popularity because they started out with a single model. If your cars are handmade and you focus all your energy into producing one at a time, there are no lemons.

In any competition, Microsoft clutches like a boxer with a twelve-in waist. Like Farley on a biscuit, they do more to spoil it for themselves than any company I have ever seen, and they get away with it, because they're filthy rich and because the pundits and the journalists are all wearing beer goggles.

They should take my advice and build the xbox using hardware virtualization! That's where they are ultimately headed anyway, building machines from software.

I would love to throw a microsoft-made xbox 360 onto my Mac.

Nov 12, 08 - 02:08 pm Comment from: Jersey_Trader

"was allegedly just 68%"! Is that 68% reject or 68% that past testing?

What delusional idiot thinks that 32% reject is ready to go into full production? How do these guys stay in business?

Nov 12, 08 - 02:10 pm Comment from: G4Dualie

Microsoft PC-360

Imagine getting an xbox 360 with the purchase of every PC. Or would it make more sense to produce a retail box? Would there be a Mac version or would Microsoft use it as leverage against the Mac? It would be a differentiator unmatched.

For the cost of a windows license, suddenly the entire 360 library becomes available. What would that do for gaming in the PC world? It would explode. Many would probably consider upgrading to a new PC just to get the embedded xbox.

Imagine what that could do for Dell? What about Sony? With help from VMware could they craft a PS out of software and include it in the Vaio line up?

Inquiring minds want to know.

Nov 12, 08 - 02:10 pm Comment from: Open Close

My day 1 purchased xbox 360 red ringed 6 months ago making me have to ship it off to be fixed. It was away for about 4 days all together.

Yet of all 3 consoles it's the one I'm most happy I've baught (had a Wii, what a waste of money that was as I'm over 6 years old).

Also I've had my fair share of problems with Apple products. iPhone 3G being dead out of the box. iPod 3rd gen remote control broken within a week. G5 tower having RAM slot issues. But we don't talk about that stuff here.

Nov 12, 08 - 02:21 pm Comment from: NeverFade

I have a PS3 - my buddy came over - who owned a Xbox 360 - saw it, and was blown away by it. Soon after that, his Xbox got the red ring and he sent it away for repair. When he got it back fixed, he sold it on eBay and bought a PS3.

The PS3 is a really powerful machine...

Nov 12, 08 - 02:22 pm Comment from: NCIceman

This is a prime example of Microsoft operating principle: they do not care about product quality or customer experience, or (lol) innovation...they only care about market share. Maybe they will learn from this lesson in shooting craps with their cutstomers...

Nov 12, 08 - 02:31 pm Comment from: The Dude

@NeverFade...
PS3 has Blu-Ray too. smile End of story. Xbox loses.


The Dude abides.

Nov 12, 08 - 02:46 pm Comment from: mark

Politics?

Microsoft will soon be in line for a government bailout.

Nov 12, 08 - 02:52 pm Comment from: Quad core

What are people complaining about. A 68% defect rate is still 32% better than Vista's defect rate.

Nov 12, 08 - 02:54 pm Comment from: silverwarloc

@Open Close:

The problem is not that its not being discussed here. The problem you are experiencing is not significant enough to warrant any attention. Just look at the bought rate and return rate. 11 million bought it (X-Box 360) and 1.2 million returned it. That's almost an 11% defect return rate.

I'd be pressed really hard to find Apple with such a high defect rate. In fact, I have not seen Apple with such a high defect rate. I could be wrong.

Nov 12, 08 - 02:57 pm Comment from: amyhre

The thing that the article mentioned for ways to make the XBox 360 more competitive could also be said of the PS3: make the pricing even more competitive. However, since many at first saw it (PS3) as a relatively cheap BlueRay Disc player with a PlayStation thrown in as a bonus, I guess it's not prohibitively expensive. Also, since it's undoubtedly one of the primary reasons why BlueRay beat out HD-DVD, the PlayStation certainly can count having it built-in as a serious plus, at least once the media itself becomes a bit more competitive and as widely adopted as DVD currently is.

Nov 12, 08 - 02:58 pm Comment from: KenC

@OpenClose, Every product has some problems. The problems with the Xbox 360 are epic in proportion, compared to anything you are talking about. If your iPhone 3G was DOA, that'd be hard to do, since the store rep opens the box, and activates it. If it's dead, they'd never give it to you. And what's a remote control on an iPod? You mean the clicker?

Nov 12, 08 - 03:41 pm Comment from: Brulek

A new name suggestion for the red ring of death: Ballmer's Butthole

Nov 12, 08 - 03:48 pm Comment from: EvilRonin

I can't figure out what problems with an XBox360 have to do with news related to Apple...

Nov 12, 08 - 04:39 pm Comment from: JB

This article is proof of why I have not nor will I ever in the future buy an Xbox game console of any kind. Besides, our family has been more than happy with the Nintendo Wii and Sony PS3 (which is also used a lot for Blu-ray movies) that we have anyway.

Nov 12, 08 - 04:41 pm Comment from: Crash

You shitheads wouldnt know good customer care if it rose up and bit you in the ass. Remember Lisa? Newton? MobileMe? Itunes? (any iteration you choose) QwikTime? You will forgive me if all arent mentioned here. But Apples shit is hardly noteworthy.

Nov 12, 08 - 04:48 pm Comment from: Cubert

@G4Dualie,

I don't think there is any requirement regarding the number of models. I think the law is there to protect consumers from companies that knowingly release defective products - which it sounds like M$ did.

Nov 12, 08 - 05:13 pm Comment from: me

“I can't figure out what problems with an XBox360 have to do with news related to Apple...”

It makes then feel better about the flaming laptop batteries and benzene fumes coming from their MacBooks.

Nov 12, 08 - 05:26 pm Comment from: @ crash and me

Remember any Windows version before Windows 95?
Hell, remember DOS?

Remember the 10,000 bugs in Windows 95?
Hell, remember them charging for those bug fixes AKA Windows 98?

Remember Windows Me?
Hell, remember Windows Vista?

Remember Zune?

Remember Microsoft screwing all their PlaysForSure partners?

Remember XBox 360?

No one screws up like Microsoft screws up.

Now get out of your Mother's basement and find a job!

Nov 12, 08 - 05:26 pm Comment from: John E

well, it turns out hard core gamers are so addicted to their favorite XBox exclusive games that they keep buying it anyway, even if they have to go through dealing with defective units. And MS has pushed down the price a lot more than Sony can to keep that hard core user base loyal and growing, thanks to its huge profits elsewhere.

so MS clearly sees the XBox as a "loss leader" to work their way into the living room and connect consumers with Windows Live etc. for a much larger MS agenda than gaming.

but the problem is, nobody but hard core gamers buys and uses the thing. it is perceived as too one-dimensional a product, and not for "grown ups."

Nobody - not MS, not Sony, not Apple, not HP, not AT&T;or whoever - has yet created the "killer box" that will that will conquer the living room by letting you effortlessly live your entire media/communication/entertainment/web life sitting on the sofa.

pretty soon tho.

Nov 12, 08 - 05:36 pm Comment from: Master Chief

Halo 3 is the only reason many people even bought the 360.

Nov 12, 08 - 06:26 pm Comment from: critic

@master chief

Keep in mind the folks at Bungie were going to put Halo on the Mac first until MS got scared and bought Bungie.

I still miss Marathon ;(

Nov 12, 08 - 08:42 pm Comment from: me

"Nobody - not MS, not Sony, not Apple, not HP, not AT&T;or whoever - has yet created the "killer box" "

MS has sold 22 million consoles which is a hell of a lot better than AppleTV.

Nov 12, 08 - 10:04 pm Comment from: KillBill

@ me

What part of "With the first Xbox, the company lost $3.7bn" don't you get?

That's about $170 a box... the "X" in Xbox stands for is the unknown amount of money this thing will cost Microsoft.

Sucks for Sure, at least MS is reliable in one area.

Nov 12, 08 - 10:10 pm Comment from: KillBill

Maybe Steve Ballmer should put an Xbox on his head and let Ted Nugent use his bow an arrow to shoot a turd.

If Ted misses his mark it won't do any damage to a piece of valuable electronic landfill.

Nov 13, 08 - 07:21 am Comment from: me

@KillBill

And now they're making buckets of money from the XBOX 360. They've taken on a market that was dominated by Sony and after only two generations they are in a leadership position.

Give credit when it's due.

Nov 13, 08 - 11:49 am Comment from: G4Dualie

@me

And now they're making buckets of money from the XBOX 360.

Dude, like Microsoft, you're in denial.

Microsoft has NEVER MADE MONEY FROM XBOX 360. Period.

What part of the story don't you understand? The story said Microsoft LOST over a BILLION dollars just last year.

As for the leadership position, I believe the article clearly states the Wii is still in the lead.

Nov 13, 08 - 01:44 pm Comment from: tlevel5

IMO the Xbox still the best gaming console out there.
And Gears of War 2, just made it that much better.

Nov 13, 08 - 03:49 pm Comment from: cv x b

Never fear, Pelosi's, Reid's, and Obama's Microsoft et al bailout will restore balance in the universe. Too bad it won't help balance your personal budget, stupid Americans.

Nov 13, 08 - 04:40 pm Comment from: me

@G4Dualie

Microsoft took a one off 1 billion dollar hit to cover the RROD last year. THAT DOES NOT MEAN THEY LOST ONE BILLION DOLLARS LAST YEAR !!!!!!

You guys need to get out a bit and look for other sources of news .

And while the Wii has sold more consoles the XBOX has sold more games which is where the money is.

Nov 13, 08 - 09:45 pm Comment from: BDecker

Makes you wonder if IBM's processor sales would have been more profitable had they just made what His Steveness had asked for.

Nov 13, 08 - 11:40 pm Comment from: John E

the XBox is a modest success as a game console only, the PS3 is barely holding its own, while the Wii is a huge success. only Nintendo is making real money.

but that misses the point. the home game console market, no matter how you split up the sales and profits, is not the big prize. yes it is worth a lot of money - more than DVD sales - and yes hard core gamers live for nothing else.

but MS, Sony, CATV companies, and others including perhaps Apple, are fighting for market control of your entire digital living room and even beyond. that is the goal of Windows Live, and integrating the XBox into it as one of several supporting legs is what they really care about, not making a few bucks - or losing a lot - from XBox sales.

i'm sorry to tell you gamer folks, but you're a sideshow in a much bigger evolving digital life-network market war.

the iPhone is Apple's attack weapon in that war (with casual gaming instead of hardcore as one key feature). it could do damn near anything, but so far Apple has not come up with any bigger idea like Windows live to tie all its potential uses together in a digital life-network.

if i were Steve J, i'd buy Yahoo for that, but that's off topic ...

Nov 14, 08 - 04:33 am Comment from: me

"Makes you wonder if IBM's processor sales would have been more profitable had they just made what His Steveness had asked for."

That's right IBM gave up selling it's power PC processors to Apple and all they've gained is Sony, Microsoft and Nintendo.

What a bad deal. hahahaha

And btw Microsoft sells more Xbox360s in one month than Apple has ever sold Apple TVs.

Nov 14, 08 - 02:04 pm Comment from: Daylate $hort

[Makes you wonder if IBM's processor sales would have been more profitable had they just made what His Steveness had asked for.]

Certainly, it would have been more profitable. But then, they would have had to work. A lot of unnecessary 'innovating'.

As it is, IBM can coast on the easy money sales of those three processors for FIVE years.

They no longer need to feel any guilt for having not promoted the PowerPC. Remember 'Intel Inside'.

IBM and MOT. Yeah, great 'partners'.

All IBM has for Apple these days, is a law suit over an employee. Pffffft!

And before anyone brings up the Mac clone disaster, let me remind those that the cloners WERE NOT 'expanding' the Mac marketplace as they had agreed to do. But, were instead eating Apple's sales. They did not create NEW Mac customers, but grabbed easy sales from 'existing' Mac customers. And publicly bitched about the cost of the license.

Again, great 'partners'.

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