Microsoft's Bach sold stock as Xbox woes surfaced
SAN FRANCISCO (MarketWatch) -- The Microsoft Corp. executive in charge of the Xbox video-game console sold $6.2 million worth of company stock during a period when technical issues with the product were becoming a major concern, according to regulatory filings.
Microsoft said Thursday that it will take a charge of up to $1.15 billion to its fourth-quarter earnings to address what it called an "unacceptable" number of Xbox repairs.
"In the last couple of months, we started to see significant increases in repair requests ... and significant attention from people," Robbie Bach, president of the entertainment and devices unit that includes the Xbox, said during a conference call with analysts at the time. "So we geared up to respond to that."
According to a review of filings with the Securities and Exchange Commission, Bach sold $6.2 million in stock in the period between May 2 and Thursday's announcement. That followed an eight-month period when he sold no company shares, according to filings.
Microsoft shares were little affected by the Xbox announcement, dropping in heavy after-hours trading Thursday to $29.88, and falling only slightly to $29.32 by the end of trading Tuesday. The shares were up slightly to $29.62 in Wednesday trading.
Bach's most recent insider sales came between May 25 and May 30, according to filings.
Bach was not available to comment. Microsoft spokesman Eric Hollreiser said that "Robbie Bach's past trading is completely unrelated to last week's announcement. ... [He] continues to hold a significant stake in Microsoft and remains confident in the long-term success of the company."
The spokesman added that while Microsoft may have known about mounting Xbox problems for some months, a decision on how to deal with them financially was reached "much more recently."
On Thursday last week, Microsoft identified a specific problem that had come to be commonly known among gamers as the "Red Ring of Death" -- a hardware failure marked by the flashing of three red lights on an Xbox.
MSFT said that it will reimburse Xbox customers who have paid for repairs resulting from the failure, and the company expanded its warranty program for machines experiencing the failure from one year to three years.
Along with news of the technical failure, Microsoft also announced that it came in shy of prior estimates of Xbox sales, with 11.6 million sold by the end of June. The company said in January that it expected to sell 12 million consoles by the end of June.
Gates, others sell
In the roughly two months before to last week's announcement, Bach ranked third in insider-share sales, behind general counsel Brad Smith, and well behind chairman and co-founder Bill Gates, consistently a top insider selling stock. Hollreiser said that Smith's sales were of company stock options, and that he used proceeds to make further purchases of Microsoft shares.
Corporate executives are often enrolled in scheduled selling plans to insulate them from the perception that stock sales may be related to insider information. Bach's insider sales during the roughly two-month period prior to the Xbox failure announcement, however, were not done according to a scheduled plan, filings indicate.
Ben Silverman, director of research at Indie Research, a firm that tracks insider sales for investors, said that insider sales at unfortunate times often occur by chance. "It doesn't necessarily mean [insiders] think that there will be a bad event; it could just be financial planning. But sometimes it just looks bad that an insider has sold stock.
"I'd give [Bach] the benefit of the doubt here, especially because the stock didn't move very much" after last week's announcement, Silverman commented.
While the Xbox announcement hardly affected Microsoft's share price, it did strike a sour note with some analysts.
A.G. Edwards analyst Kevin Buttigieg wrote in a note last Friday that while Microsoft "portrayed the Xbox's technical and financial problems as essentially in the past ... Xbox 360's image may still suffer in the eyes of consumers."
Buttigieg said that Microsoft still expects its Xbox business to become profitable sometime during fiscal 2008. "But with continuing issues with the Xbox, we think [Microsoft] will be challenged to attain its profitability goals."
Microsoft is due to report fourth-quarter earnings July 19.
Bach said last week that Microsoft already has developed a technology fix for the red-light failure, which is being implemented in some inventory and in Xbox consoles now in production.
O problema reside numa falha de design que pode originar a falência da máquina, falha essa que a Microsoft não quis explicar em pormenor até agora. De modo a compensar os utilizadores, a empresa já aumentou a garantia para os três anos. Todavia, a Microsoft não tem quaisquer planos para trocar as consolas defeituosas. A Microsoft disse ter já implementado as mudanças necessárias para resolver este problema, e estima que os custos da reparação possam ficar entre os 1,05 e os 1,15 mil milhões de dólares. 
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