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Shares of Microsoft fell 0.4% to $29.88 in extended trading, erasing approximately $1.05 billion from its market capitalization, or the low end range of the $1.05b - $1.15b pre-tax charge it announced it will take against its Q4 (ended June 30) earnings related to current and enhanced Xbox 360 warranties. Microsoft-MSFT-chart-07-05-07 The charge will lower Q4 EPS by $0.07 - $0.08, but have no impact on fiscal 2008 earnings. CFO Chris Liddell said the company is still eying Xbox profitability sometime this fiscal year. The decision to expand the Xbox 360 warranty to three years (from one previously) was the result of "an unacceptable number of repairs." The new warranty is effective on a global basis for customers who experience a "general hardware failure indicated by three flashing red lights," known as "The Red Ring of Death" among gamers. Microsoft had already expanded its Xbox 360 warranty for U.S. consumers to one year (from 90 days) last December. Microsoft lost 0.1% to $29.99 in normal trading. It reports Q4 earnings July 19.

Sources: Press release, Associated Press, Bloomberg, MarketWatch, Wall Street Journal
Commentary: Microsoft Having Problems With Xbox 360? You Don't Say!Microsoft: Xbox Hardware Failures Prove CostlyWii Extends Lead Over PS3
Stocks/ETFs to watch: Microsoft Corp. (MSFT). Competitors: Nintendo Co. Ltd. (OTCPK:NTDOY), Sony Corp. (SNE). Gaming software publishers: Electronic Arts (ERTS), Activision Inc. (ATVI), Konami Corp. (KNM), Take Two (TTWO), THQ Inc. (THQI). ETFs: iShares Goldman Sachs Software Index Fund (IGV), Software HOLDRS Trust ETF (SWH), PowerShares Dynamic Software (PSJ)
Conference call transcripts: Microsoft F3Q07, Sony F4Q06

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Source: Microsoft to Take $1B Charge for Xbox 360 Repairs