Xbox chief unloaded stock amid Xbox failure fiasco

A few days ago, Microsoft owned up to the fact that every single one of the 11.6 million Xbox 360s it has sold suffers from a design flaw that could potentially cause a device failure—the so-called “red ring of death”. As a result, the company said it would extend the Xbox 360’s warranty to three years. It also predicted that repair costs would add up to somewhere between $1.05 billion and $1.15 billion.

That’s not the whole story, though. According to MarketWatch, Microsoft—or at least the company’s Xbox chief Robbie Bach—has been aware of the issue for quite some time. A review of filings with the Securities and Exchange Commission suggests Bach sold a whopping $6.2 million in stock between May and the date of the official announcement last week. Bach had reportedly not sold any stock in the eight months prior to that period, suggesting a connection to the Xbox 360 failures. However, a Microsoft spokesman told MarketWatch the trading was “completely unrelated” to the announcement. Microsoft had been aware of the issue for “some months,” the spokesman added, but a decision regarding how to deal with it was only reached “much more recently.”

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    • somegeek
    • 13 years ago

    So, how come TR isn’t reporting on Peter Moore’s resignation?

    Oh, it’s /[

    • somegeek
    • 13 years ago

    Microsoft said they had to make hardware changes to prevent the RROD. Which means all the old systems have the potential to get it.

    If I was an Xbox 360 owner, I’d send it in and get a new one even if it was still working. I think Xbox 360 owners are entitled to that and it’s not like they can’t afford it.

    • green
    • 13 years ago

    microsoft didn’t admit to the problem (and likely never will)

    the only way they came up with every single console having the design flaw is that the 3 year warranty is retro-active and covers rrod
    they make the link as the first editions as well as ones being sent out now are covered
    it’s a correlation or sorts but not anything solid

    microsoft would have fixed the issue by now except that it wouldn’t be in currently shipping units
    it’s probably the .65 rehash where they likely haven’t changed anything and are just banking on the cooler running process to work it out

    • PetMiceRnice
    • 13 years ago

    The RROD, along with reports of discs that get scratched in some Xbox 360 DVD drives, was enough to spook me from buying the system. Plus also the fact that I remain happy with the original Xbox. My Holiday 2004 edition still works fine.

    Hopefully the upcoming die shrink will also help with some of the failure rates.

    • spuppy
    • 13 years ago

    And yeah, they didn’t “own up” to shit:

    David Hilal (Friedman Billings Ramsey): A question on how many units have been affected out of the 11.6 million and is there a problem that’s completely behind it?

    Robbie Bach: Yeah, so we’re not going to discuss, nor have we historically discussed, return rates or specific numbers of units. Suffice it to say that with a billion dollar charge and the focus we’re putting on this that it’s a meaningful number. It’s one that we take very seriously and one that clearly has our attention. In terms of going forward, we do feel like we understand the issues and have made the changes needed to dramatically reduce this problem going forward and that we think we have our hands around it at the engineering level, which is the important thing for us clearly to do. And in fact, as Chris inferred, if you look at our fiscal year ’08 expectations those are on track with what we said in the past and that’s because we feel comfortable with where we are on the engineering side.

    • spuppy
    • 13 years ago

    Why do people keep linking to that obscure Australian website that claims Microsoft “admitted” that EVERY SINGLE xbox 360 is defective? Where in the article does it say that? Whose quote is it? I don’t see ANYTHING there regarding that sensationalistic headline…

    • Kent_dieGo
    • 13 years ago

    Announcing a 3 year warantee. What kind of fiasco is that? Treating their customers well can only help in the long run.

      • somegeek
      • 13 years ago

      Microsoft extended the warranty for their own benefit not for the Xbox 360 owners. Extending the warranty reduces the chance of a class action lawsuit and avoids a recall.

        • provoko
        • 13 years ago

        Sounds good. I wish hard drive and PSU manufactures would do the same.

    • PRIME1
    • 13 years ago

    Coming this fall to the Xbox360….

    INSIDER TRADING.

    🙂

    • Ricardo Dawkins
    • 13 years ago

    he sold it ’cause the Zune is *** THE FIASCO *** he helped to develop

    • nonegatives
    • 13 years ago

    Hey Robbie, give Martha Stewart a call.

    • derFunkenstein
    • 13 years ago

    Did the warranty extension even have an affect on MS’s stock prices? If not, I wouldn’t even worry.

      • Shark
      • 13 years ago

      Did you read the article?

        • derFunkenstein
        • 13 years ago

        what is this, a news site or a blog? Apparently the latter. And no, it had no real effect.

        • derFunkenstein
        • 13 years ago

        and apparently Cyrill didn’t either, or he wouldn’t have said that every single Xbox 360 had this problem, which would include the ones that have shipped since it was discovered, which in turn would indicate MS hasn’t figured out what’s wrong.

          • Shark
          • 13 years ago

          That quote is from the first link.

          dude, you need to calm down.

    • wierdo
    • 13 years ago

    MS’s console construction quality seems to be even worse than Sony’s, the only decent manufacturer left is Nintendo, but their console trades muscle for innovation, which is a difficult choice for the hardcore gamer.

      • d2brothe
      • 13 years ago

      Shouldn’t be a difficult choice, especially with the price being appropriately scaled. If you really want horsepower PC gaming is the way to go anyway IMO.

        • wierdo
        • 13 years ago

        That’s basically what I’m doing, the “muscle” consoles feel like a poor man’s PCs to me, the Wii, on the other hand, brings something different to the gaming scene that’s not the usual eye candy stuff.

    • JJCDAD
    • 13 years ago

    “A few days ago, Microsoft owned up to the fact that *[

      • Inkedsphynx
      • 13 years ago

      They stated they identified and fixed the flaw causing the RROD. I’m assuming that they are simply saying that all sold to date came from the supply chain before the problem was identified and fixed. Now that it has, anything new coming into the pipeline will be ok to use.

      Thus, they will replace your broken unit with a new fixed unit. But why recall all of them when the failure rate is not 100%, and when they failure is not a safety hazard to people?

      Btw, to a comment made prior to this one, I’ve had mine 3 weeks now, running some days up to 8 hours straight (I’ve been sick), and it’s had nary a hiccup. Of course, I’m not an idiot like 90% of people I know that had an RROD, I don’t have my unit shut up tight as a board inside some entertainment center with heat-soaking wood and no ventilation. Mine sits in the open where it can be safely and adequately ventilated.

        • Nutmeg
        • 13 years ago

        The ventilation has nothing to do with it. You could keep it in a fridge and it would still break.

          • Inkedsphynx
          • 13 years ago

          Well, I guess time will tell then. I guess the heat issues my friends have had is a coincidence, though I’m certain overheating a console does not help longevity in any manner.

          Either way, I’m feeling fine with my purchase. I’ve got a 3 year warrenty, and if need be, when I get to 2.5 years, I’ll leave the damn thing on 24/7 for 3 months and if it doesn’t break, it probably won’t. If it does, I get a replacement, and by that time, I’ll likely get an improved model with a 65nm chip.

          • SGT Lindy
          • 13 years ago

          Hahahah I have two of them still going strong from dec 2005 and feb 2006.

          Both are very well ventilated….and I have never had a problem. Both dont have direct sunlight on them at any time during the day and both have at least 12inch on all sides from anything at all (except the bottom).

          Is there a problem….sure there is. If the box gets too hot the solder around the GPU/CPU gets soft and it can cause a micro connection break, when the mobo flexes ever so slightly from the heat, and then you get the RROD.

          The fix is a bigger heat sink and a silicon substance that holds the GPU/CPU down around its edges. The combo keeps the solder cooler and if it does flex the GPU/CPU is held in place better. Moving to the .65nm in September will fix it even better with a cooler CPU.

            • Inkedsphynx
            • 13 years ago

            So I was right, there is a correlation between the heat and the RROD. Thank you for pointing this out, I didn’t really know what the actual problem was before, just that all my friends with boxes that were poorly ventilated have had the RROD at least once.

          • nexxcat
          • 13 years ago

          Actually, ventilation does have something to do with it.

          In the Japanese manufacturing trade rag I read (sorry, dead-tree edition only), they were looking at the X-Box 360’s issues. It seems to come down to improper soldering temperatures they used for their component mounting. Improperly soldered joints are weaker, and thermal expansion and compression causes mechanical stress to these joints — due to unequal coefficients of thermal expansion, causing these joints to break.

        • Slade
        • 13 years ago

        90%, huh? Whose ass are you pulling that from?

          • Inkedsphynx
          • 13 years ago

          Well, since I know 10 friends personally that have had an RROD, and 9 have had the RROD coincide with their console being placed in a small confined space in an entertainment center, that’d make 90% wouldn’t it?

          Thanks for being rude though. Appreciate that.

      • derFunkenstein
      • 13 years ago

      if you read the link of “owned up” it does say that it has been corrected, so it’s not every one of them.

      So Cyrill made a pretty big error in the wording of the news article

        • Dissonance
        • 13 years ago

        Read it again.

        /[<"Software giant admits there are 11.6 million faulty consoles, which it will have to fix. Microsoft has admitted that every one of the *[<11.6 million Xbox 360 consoles sold<]* in the past 19 months suffers from a design flaw that could cause the device to fail. "<]/

          • derFunkenstein
          • 13 years ago

          the two statements are contradictory. They either fixed it or they didn’t.

          • derFunkenstein
          • 13 years ago

          §[<http://www.joystiq.com/2007/07/06/microsofts-red-ring-warranty-conference-call-transcribed/<]§ That's through the end of June. "but the charge also covers the cost to repair more consoles that are being produced to date." OK, so they haven't fixed the issue yet. But yet they go on later to say they have, so it's obviously not EVERY CONSOLE SOLD, only 11.6 million, which is most of them. Another interesting exchange: Kevin Buttigieg (AG Edwards): Just to be clear then, in response to one of the earlier questions, the increase in the warranty, I would assume that that would have some impact on your revenue recognition on Xbox next fiscal year. Wouldn't an extra warranty, for example, require a little bit lower revenue recognition for that extra cost? Frank Brod: No, we are setting up reserves based upon the repairs that we expect, but the revenue recognition itself doesn't change at all. We'll still be selling the Xboxes to the consumers on the same terms, just as we've been doing so up until now. Chris: And to be clear, clearly, with the Xboxes that we're now manufacturing, even though the warranty is for 3 years, that's as much a security blanket, if you like, rather than an expectation. We expect it to be a very good performance going forward, given the corrections we've made in the manufacturing process.

            • Inkedsphynx
            • 13 years ago

            I know I’ve read somewhere that they corrected the issue. I can’t give a link because I can’t remember where.

            I took the “…consoles being produced to date…” to mean that they were factoring in the normal and reasonable failure rates for repair, and blanket covering that under the warrenty as well, since this billion dollar charge is meant to cover several years into the future, it’s just being charged all at once in an accounting tactic to make later quarters appear more profitable.

            • derFunkenstein
            • 13 years ago

            that whole transcript at the end says they’ve fixed it, which would imply that it’s not really every console sold to date.

            • Dissonance
            • 13 years ago

            Once the issue is fixed, those consoles have to be shipped into the supply chain and make their way to store shelves before they can be sold to customers. Microsoft may have fixed the problem, but that doesn’t necessarily mean what’s on store shelves right now has that fix applied.

            • derFunkenstein
            • 13 years ago
            • derFunkenstein
            • 13 years ago

            edit: nvm

      • opinionated
      • 13 years ago

      I thought all Microsoft said was that the 360 was experiencing an unacceptable failure rate and because of that the warranty was being extended to three years. I don’t think they ever admitted to a design flaw “in every single one”.

      • Slade
      • 13 years ago

      Yes, even the “repaired” ones are bad. Unless you received a recently repaired system, it more than likely does not have the added heatsink they are using to fix the issue.

      The reason I can say this is because I’m on my third X360, each one replaced with a refurb from MS (I doubt that any of them were new).

      And for the naysayers, if it hasn’t failed yet, it will. MS has pretty much owned up to that fact.

        • JJCDAD
        • 13 years ago

        My replacement was sent the first week of January 2006. I doubt they had time to ‘refurb’ any by that time. It certainly looked new and it was not the same unit because the s/n was different (I took pictures before sending in the broken one). Oh well…16 months and still going strong. As long as it doesn’t take a dump in the 37th month. :0

    • Hattig
    • 13 years ago

    I wonder how Europe will take the information that the XBox360 has a design flaw that will lead it to inevitably break (rather than component fatigue). We have far stronger consumer protection laws over here, so a 3 year warranty on this flaw might not be seen as ‘enough’. Also the EU don’t like Microsoft and they might get some glee imposing an eternal ‘RROD replacement’ requirement.

    On the other hand, the flaw won’t lead to your house burning down, and the returns procedure is apparently painless and low-hassle, apart from not having your console for a while. Not as low-hassle as having a product that works, of course…

    It does suggest to me that the ‘360 was released too early, in order to be first (with an assumption that the PS3 would be released the following March). Some extra time testing the design could have caught this problem. I recall the time between the first test boxes and the actual release was very short.

    • UberGerbil
    • 13 years ago

    Well, it certainly looks suspicious and I’m sure the SEC will be looking into it, though this kind of thing can be awfully hard to prove. On the other hand, it’s possible there is an innocent explanation: I don’t know off-hand when Bach was hired by MS, but I believe it was more than 10 years ago. In which case he could have unexercised options coming due (they generally have a 10 year expiration, so it’s use it or lose it). I’m sure a lot of long-time MS employees have been sitting on their options hoping the price will go up, even though anything before ’99 or so will still have a considerable value, but eventually they have to dump them. Moreover, as a company officer, Bach would have very limited timeframes when he is allowed to exercise options (around reporting “quiet periods”). But that’s going to be trivial for the SEC to determine, so if these were shares he wasn’t forced to sell, he’ll have some ‘splaining to do….

    • Willard
    • 13 years ago

    Nothing to see here! Move along! <shoves 6.2 mil in sock>

      • Willard
      • 13 years ago

      yes, sock, not stock.

    • provoko
    • 13 years ago

    Whoa, sounds scary at first, but all that’ll happen is the guy will never get a job again. Nothings going to happen to the 360.

    I know dozens of people with 360s and no ring of death or over heating has ever occurred, and probably won’t. It’s how you take care of something.

      • rythex
      • 13 years ago

      if they haven’t failed yet, they will.

        • Corrado
        • 13 years ago

        My launch 360 is still going strong. :shrug:

        • provoko
        • 13 years ago

        Haha. My point was the complete opposite, if they haven’t failed, then they won’t. My 360 is 6 months old, and there hasn’t been one issue. My friends, over a year and still nothing.

          • derFunkenstein
          • 13 years ago

          I got my first error after 15 months, but it was a weird random hard drive-related error (according to MS’s site) that went away when i turned off the ssytem and turned it back on.

      • somegeek
      • 13 years ago

      So you’re saying Xbox 360 owners are just unusually stupid.

      • absinthexl
      • 13 years ago

      welcome to the world of availability bias

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