On Thursday, Microsoft announced that it will now provide warranty coverage to all Xbox 360 owners for three years, a response to persistent news reports--still unconfirmed by Microsoft--that the Xbox 360 failure rate is much higher than expected. Under the new warranty, even the earliest Xbox 360 adopters will be covered through at least November 2008. By then, the company is expected to ship a second generation Xbox 360 console that will hopefully not be affected by the same widespread hardware failures.

"The majority of Xbox 360 owners are having a great experience with their console and have from day one," says Microsoft president Robbie Bach, leaving open the possibility that up to 49 percent of consoles have failed. "But, this problem has caused frustration for some of our customers and for that, we sincerely apologize. We value our community tremendously and look at this as an investment in our customer base. We look forward to great things to come."

According to previous estimates, 30 to 35 percent of all Xbox 360 consoles have experienced a hardware failure. But the size of the warranty cost--somewhere between $1 billion and $1.165 billion--suggests that between one-third and one-half of all 12 million Xbox 360 consoles sold so far have failed. This is an absolutely stratospheric failure rate, leaving Microsoft with the costliest consumer electronics warranty repair bill in history.

Microsoft admits only that it has had to make "an unacceptable number of repairs to Xbox 360 consoles" and that after investigating the issue, it has determined that the failures are related to "a number of factors." In addition to the repairing consoles going forward, Microsoft will also reimburse any customers it previously charged for repairs.