Weeks before he announced an "unacceptable number of repairs" to the Xbox 360, the Microsoft executive in charge of the video game console sold US$6.15 million worth of company stock, or about 20 percent of his holdings.
According to regulatory filings with the U.S. Securities and Exchange Commission (SEC), Robbie Bach, president of Microsoft's entertainment and devices division, sold 200,000 shares in four transactions between May 3 and May 30. The total take: more than $6.1 million.
On July 5, Bach was one of two Microsoft executives who spelled out the problems with the Xbox 360 to financial analysts and reporters. The game machine's design, Bach said, was defective. "Over the past couple of months, the number of repairs for the Xbox 360 console have been unacceptable to us," he said during a telephone conference call.
To handle the influx of customer complaints, Microsoft said it was immediately extending the Xbox 360's warranty from one to three years for any problem diagnosed with the three flashing lights error message, dubbed the "red ring of death" by users. To pay for the anticipated repairs, and to evaluate and fix systems still in inventory, Microsoft will take a charge of more than $1 billion against earnings for the quarter that ended June 30.
Also during the conference call, Bach said that Microsoft had been aware of the Xbox 360 problems for several months. "This set of issues wasn't visible at all for the first year and more," he said. "[But] the past couple of months, we've seen a significant increase in call volume, repair volume and attention from people."
Before his May moves, Bach last sold shares Aug. 31, 2006, when he disposed of 40,710 shares worth just over $1 million. But although top-tier executives often file scheduled sell plans -- dubbed "trading plans" in the vernacular -- to protect themselves from accusations of insider trading, Bach's May sales were not under such a plan.
Still, Bach should be given the benefit of the doubt, said Ben Silverman, director of research at InsiderScore, an insider trading intelligence service. "There's so much scrutiny of Microsoft that it would be very surprising if there was some kind of questionable insider activity," said Silverman.
Another type of trading plan, noted Silverman, doesn't require a public filing. These plans, which fall under the SEC's Rule 10b5-1, let companies set a trade window during which executives can sell (and buy, though that's rare) shares without restrictions. "It appears that there was a trading window open in May at Microsoft," Silverman added, citing sales by several other executives, including Chairman Bill Gates, General Counsel Brad Smith and the head of the Windows division, Kevin Johnson. "There were no insider sales in April and March," he said, intimating that the timing may not have been up to Bach.
Microsoft's share price was little affected by the news of the Xbox 360's failure rate and the associated $1 billion charge. The day after the announcement, the price closed down just 2 cents. As of Thursday, it had recovered to $30.07, up 8 cents since the July 5 warranty change. Bach sold his shares in May at an average price of $30.73.
Microsoft did not respond to a request for comment.