Numerous reports and anecdotal evidence pointed out the fact that the Microsoft created Xbox 360 had an exceptionally high hardware failure rate for a gaming console. The famous Red Ring of Death reared its ugly head in the most unlikely of circumstances and even some of the machines that Microsoft used for demonstrations of its Xbox technology or for the demos of upcoming games sometimes died while in use.

The Red Rings of Death epidemic was a dual problem for the company. On one hand, the image of the Xbox 360 suffered and allowed its direct competitors, the Sony made PlayStation 3 and the Nintendo Wii, to brag about how the quality they offered was much better. On the other hand, the cost of the recall of defective consoles and the costs associated with repairing and replacing consoles that gamers sent back to Microsoft went up to reach the $1 billion mark. Microsoft still refuses to release official figures regarding failure rates and repair costs, but some analysts say that the Red Ring of Death issue could have cost the company more than $2 billion overall.

And it seems that all of this was caused by the desire to save some money. Bryan Lewis, vice president and chief analyst at Gartner, a respected market analysis firm, stated that the reason for the Red Ring of Death epidemic was the fact that Microsoft decided to avoid resorting to an application specific integrated circuit vendor, so it chose to design and produce its own graphics chip for the Xbox 360. Usually, a company only does the design and then signs it off to another company that handles production. Microsoft did not do this and ended with a chip with problems when it came to overheating.

Lewis says that "Had Microsoft left the graphics processor design to an ASIC vendor in the first place, would they have been able to avoid this problem? Probably. The ASIC vendor could have been able to design a graphics processor that dissipates much less power."

Apparently, Microsoft has learned its lesson and is now using a third party to produce the graphics chips that go into consoles. However, the image problem generated by the Red Ring of Death remains.