The Red Ring of Death means a dead Xbox 360.

JULY 20, 2007 • In addition to incurring a $1.06 billion charge against earnings to extend the warranty period for the Xbox 360 to three years due to an “unacceptable” number of hardware failures, Microsoft reported in an earnings statement that it shipped 700,000 Xbox 360 units during the period, compared to 1.8 million units during the fiscal fourth quarter of 2006 – 61%. less. Revenue from Xbox and PC games decreased 28% ($265 million) from fourth quarter 2006 to fourth quarter 2007.  Rumors circulate that employees from national retailers in the U.S.and Canada are reporting that Xbox 360 defective return rates average between one-quarter to one-third of units sold. In acknowledgement that retail support for the HD-DVD format is going soft, Microsoft announced it was trimming the price of its HD-DVD add-on player by $20 to $179, and giving consumers five free movie titles with every purchase between Aug. 1 and Sept. 30.

Impact: It was clearly not a good quarter for the Xbox 360.  Last year, Microsoft had originally announced intentions to reach total unit shipments of 13 to 15 million by the end of fiscal 2007, with 10 million units by the end of calendar 2006.  They made the 10 million goal, but much of that was inventory sitting on store shelves, so Microsoft reduced their fiscal year end shipment forecast to 12 million, but still fell short.  It is clear now that much will be riding on Halo 3 to change the downward momentum.