How Xbox 360 ‘red ring of death’ debacle cost Microsoft $1.15 billion last year alone

“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.]

41 Comments

  1. 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.

  2. 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.

  3. 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.

  4. 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.

Reader Feedback

This site uses Akismet to reduce spam. Learn how your comment data is processed.