$1 Billion Charge to Format-War Loser: Did Toshiba Get Off Easy?

To design a consumer electronics product and ramp up its production costs lots and lots of money. To shut down the conveyor belts after marketing is already in full swing costs even more. Still, it sure hurt: Japanese business paper The Nikkei reported Thursday that Toshiba is expected to take a loss of nearly $1 billion in the financial year ending March 31.

The company's stock is taking a major hit, but why? Analysts think Toshiba's decision to ditch HD DVD will save the company as much as $500 million a year. When Toshiba pulled the plug on HD DVD in February, it knew it would take a financial hit, but the company killed the product to save money in the long run.

Even if HD DVD ends up costing Toshiba $2 billion, things could've been a lot worse. Sticking stubbornly with a losing product could've dragged on the company's finances for years to come. This is essentially a one-time charge, and a fairly tame one at that.

Remember when Microsoft's Xbox 360 starting acting strangely and flashing lights that gamers dubbed "The Red Ring of Death"? Microsoft paid more than $1 billion just to fix the broken machines and extend warranties. Makes Toshiba's $1 billion punishment for aborting the "HD DVD Format of Death" - a far more damning mistake than a hardware failure - seem lenient to us. -Rachel Rosmarin

Nikkei (Subscription Required)
AFP

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