Microsoft is to take a charge of more than $1 billion (£497 million) after admitting to selling faulty Xbox 360 games consoles. The software giant revealed yesterday that it had identified hardware problems with its video game system.

The group is to expand its global Xbox 360 warranty to cover for the problem —identified by an error message of three flashing lights error message —to three years from the date of purchase to cover for the problem. It is will also to reimburse customers who have previously paid repair expenses for to repair the flashing light problem — identified by an error message of three flashing lights.

The concession to an “unacceptable number of repairs” with the console follows a mounting number of consumer complaints on the internet and elsewhere from consumers. Previously, Microsoft had insisted that the failure rates for the system were within an acceptable level.

The group has identified a “number of factors” that cause the problem.

In a statement last night, Robbie Bach, president of Microsoft’s Entertainment & Devices Division, said: “The majority of Xbox 360 owners are having a great experience with their console and have from day one. But this problem has caused frustration for some of our customers and for that we sincerely apologise.” The group had improved the console, he added.

The confession will come as a blow to the US group, which is locked in a fierce war with the rival Nintendo Wii and the Sony PlayStation3.

Bill Gates, the Microsoft founder, regards the Xbox 360, which was launched in 2005, as the centrepiece of the group’s home entertainment strategy.

The group is to take a charge of $1.05 billion to $1.15 billion, before tax, to its earnings for the quarter to the end of June. The extended warranty will apply to existing customers who have experienced the flashing lights problem as well as to new customers.

Repairs under the warranty will be free of charge, including shipping costs.

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