Expanded warranty for Xbox 360 to cost Microsoft more than $1 billion

Redmond (WA) - Microsoft today said that it is now covering Xbox 360 consoles with a 3-year warranty for general hardware failures and will reimburse customers who previously paid for certain repairs.

The new initiative comes as a result of what Microsoft calls an "unacceptable number of repairs to Xbox 360 consoles" and will provide an extended warranty for new and existing Xbox 360 customers. The company said it will be covering any Xbox 360 that is experiencing a general hardware failure indicated by three flashing red lights with a three year warranty from the date of purchase.

According to a statement released on Thursday, Microsoft has "identified a number of factors which can cause general hardware failures" and has made "improvements to the console." In combination with the extended warranty, the company expects this move to cost between $1.05 billion and $1.15 billion - which Microsoft will record as a pre-tax charge in the Q2 earnings report, due for release on July 19.

Included in the charge are reimbursements that Microsoft will pay to customers who previously paid for repairs due to "three light" general hardware failures.

"The majority of Xbox 360 owners are having a great experience with their console and have from day one. But, this problem has caused frustration for some of our customers and for that, we sincerely apologize," said Robbie Bach, president of Microsoft’s Entertainment & Devices Division, in a prepared statement. "We value our community tremendously and look at this as an investment in our customer base come."