Microsoft has announced it will cost over $1 billion to fix “an unacceptable number of repairs” to the Xbox 360 system.

The company has been under increasing pressure to address the growing number of complaints regarding Xbox 360 hardware failures. Prior to this, Microsoft had refused to comment on the possibility of an endemic flaw in the console, but now says it has identified “a number of factors” that can cause the so-called “Red Ring of Death” failures. Robbie Bach, president of Microsoft’s entertainment and devices division, said that many of these factors would take time to appear, leading to a higher number of failures in the second year of the system’s release. He refused to say how many of the consoles had been returned due to failure, but did say, “The number is too large.”

In response to this, Microsoft said it will extend the warranty coverage of the Xbox 360 to three years, and reimburse any customers who had previously paid for Red Ring of Death repairs. Modifications have also been made to the system to improve its reliability. Estimates of the final pre-tax charge to cover the repairs range from $1.05 billion to $1.15 billion.

Along with this announcement, the company also reported it had missed its shipment targets for the end of June, shipping 11.6 million Xbox 360s, short of the target of 12 million. This, along with increasing expectations that Sony will announce a price cut for its PlayStation 3 console at this year’s E3, have led to concerns that Microsoft could lose the edge it currently holds over Sony in the console wars. According to Bach, however, the timing of the announcements were completely unrelated to Sony.

“This is just one of those things that happens when it happens,” he said. “We reached our conclusion early this week and because it’s a financially meaningful issue we had to announce it immediately.” Bach refused to comment on whether Microsoft would respond to a PlayStation 3 price cut with one of its own, saying, “We will assess what we do with pricing and other aspects of our business based on our own business.”

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