In an unexpected move, Microsoft announced Thursday that it will take a charge of $1.05 billion to $1.15 billion due to what the company calls “an unacceptable number of repairs” to Xbox 360 consoles. The Xbox 360 is a core element of Microsoft’s connected entertainment strategy. Warranties will be extended to three years for consoles that have general hardware failures indicated by three flashing red lights; Microsoft will reimburse retroactively anyone who has paid for repair expenses related to that error message. Release.

seattlepi.com: “Apart from the unexpected financial hit, it’s a shift in the company’s position on the issue, and it may be seen as vindication for gamers who have complained about problems. ... The conference call revealed another interesting bit of news: Microsoft says it sold a cumulative total of 11.6 million Xbox 360s as of June 30, missing its previous forecast of 12 million.”

Mary Jo Foley: “Microsoft officials have said they believe Xbox hardware failure rates to run between three and five percent, which the company considers acceptable. But some retailers claim the Xbox console failure rate to be substantially higher, approaching 33-plus percent.”

LAT: “Microsoft said the glitch, which causes the console to freeze up, affects a small percentage of units. But analysts say the financial effect was substantial, effectively adding $100 in cost for each of the nearly 12 million consoles the company has sold since the Xbox 360’s debut in November 2005.”