Microsoft expects Xbox repair costs of up to $1.15b

SEATTLE -- Microsoft Corp. will incur pretax costs of as much as $1.15 billion related to repairs of its Xbox 360 video game consoles and said sales of the machines missed forecasts for the year.

Warranty coverage for the consoles is being extended after an "unacceptable" number required repairs, the company said yesterday . Microsoft expects the move to cost $1.05 billion to $1.15 billion in the quarter ended June 30.

The setback may hinder Microsoft, the world's biggest software maker, as it strives to catch up with Nintendo Co.'s Wii, which has outsold the Xbox every month since going on sale in November. Microsoft pledged to make the Xbox division profitable in the fiscal year that began July 1 as investors have tired of losses incurred since 2001.

"It's a pretty big black eye," said Matt Rosoff, an analyst at research firm Directions on Microsoft. "It's certainly not going to help the Xbox compete against Nintendo, and it may be the stumble" that PlayStation 3 maker Sony Corp. needs to win sales.

Shares of Redmond, Wash.-based Microsoft dropped 3 cents to $29.99 in Nasdaq Stock Market trading.

The company said it has has sold 11.6 million machines since the Xbox 360's release in November 2005, missing a target of 12 million. Initially, Microsoft forecast sales of as much as 15 million.