Microsoft's Videogame Efforts Take a Costly Hit
                                                                                                by Nick Wingfield

    Microsoft Corp.'s announcement of a more than $1 billion pretax charge to cover defects in its Xbox 360 games console represents an embarrassing misstep for a company still struggling to profit from the games business.
    The company said it will take a $1.05 billion to $1.15 billion pretax charge and extend the Xbox 360 warranty for consumers after experiencing an "unacceptable" number of repairs to Xbox 360s already sold. Microsoft executives declined to discuss the technical problems in detail, but said that there are a number of factors that can cause malfunctions leading to a failure of the Xbox 360 systems. The problems are indicated by three flashing red lights on the front of the console.
    The problems represent a costly setback for the Redmond, Wash., software company's efforts to profit from the videogame business, which it entered in later 2001 with the original Xbox as part of an effort to capitalize on the fast-growing convergence of technology and entertainment. Microsoft introduced the successor to its original product, the Xbox 360, in November 2005 and says it has shipped 11.6 million of the consoles to retailers around the world.
    Microsoft leads its competitors in the market for the latest generation of games hardware, in part because it began selling the Xbox 360 a year before them. In the U.S. retailers have sold 5.6 million Xbox 360s to consumers, compared to 2.8 million of Nitendo Co.'s Wii and 1.4 million of Sony Corp.'s PlayStation 3, according to market-researcher NPD Group Inc.
    But Microsoft's game efforts have been a consistent money-loser for the company. In the past three fiscal years, Microsoft has reported a cumulative operating loss of $3.08 billion from its home and entertainment division, of which the Xbox 360 is the dominant product.
    Microsoft sail it will extend to three years the warranty coverage on all Xbox 360s for any consumer whose console displays the three red lights. Previously, the Xbox 360 warranty was for one year from date of purchase in the U.S. and two in Europe. Microsoft said it has made improvements to the console that is believes will fix the problems in future Xbox 360s.
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