In an Aug. 30, 2005 memo, the team reported overheating graphics chip, cracking heat sinks, cosmetic issues with the hard disk drive and the front of the box, under-performing graphics memory chips from Infineon (now Qimonda), a problem with the DVD drive, and other things.
The test machines were not properly debugged, due to an ill-advised cost-cutting initiative that shaved $2 million from $25 million paid to Cimtek, a test machine maker in Canada. The Microsoft team decided not to pay the consulting fee to Cimtek to build, manage and debug the test machines. Sources familiar with the matter said there were only about 500 test machines at the time of launch, a third of the 1,500 needed. "There were so many problems, you didn't know what was wrong," said one source of the machines. "The [test engineers] didn't have enough time to get up and running."
Microsoft had more than 500,000 defective consoles that sat in warehouses. They were either duds coming out of the factory or they were returned boxes, according to inside sources. The yield was climbing, but far too slowly. The company stood by its statement that returns were within "normal rates for consumer electronics products."