Microsoft is to absorb a bill of more than $1 billion (€734 million) to fix "an unacceptable number of repairs" to its Xbox 360 video game consoles, the company said yesterday.

It also said it had missed shipment targets for the end of June.

Microsoft is under pressure with mounting complaints about Xbox 360 failures on the internet and growing expectations that Sony could slash the price of its rival PlayStation 3 console at a video game exhibition next week.

So far, Microsoft has the lead on Sony in the battle for high-end video game machines, but it shipped only 11.6 million 360s by the end of June, compared with a target of about 12 million, chief financial officer Chris Liddell said during a conference call with analysts this week.

Robbie Bach, president of Microsoft's entertainment and devices division, said the timing of the announcement about the charge for the quarter ending in June and a new extended warranty were unrelated to any potential move by Sony.

"This is just one of those things that happens when it happens," Mr Bach said in an interview. "We reached our conclusion early this week, and because it's a financially meaningful issue, we had to announce it immediately."

The hardware issue has marred a string of successes for Xbox 360, which has built an early lead over the PlayStation 3 with Microsoft's strong line-up of games and online services.

Mr Bach would not say exactly how many Xbox 360s had been returned except that "the number is too large." The company said it would extend warranty coverage to three years to cover the problem and would reimburse customers who had previously paid for repairs. - ( Reuters )