Microsoft said it would take a more than $1 billion charge in the most recent quarter due to costs for a new extended warranty program for its Xbox 360 video game console.
Microsoft cited "an unacceptable number of repairs to Xbox 360 consoles" for the move.
Xbox 360 customers who experienced general hardware failure indicated by three flashing red lights will now be covered by a three-year warranty, the company said.
The charge will be between $1.05 billion and $1.15 billion, before taxes, for the quarter ended June 30, Microsoft said. The software giant said it still expects its Xbox video game division to make a profit in fiscal 2008.
"Our goal has been to have Xbox profitable in the coming fiscal year 2008," said Robbie Bach, president of Microsoft's entertainment and devices unit. "We don't think this changes that in any way."