In a sample of over a thousand warranties sold to Xbox 360 owners, the company found that 16.4% of users experienced hardware failure, with some 60% of that number attributed to the infamous "red ring of death."

In response to hardware failure rates—which Microsoft estimates around 3%—Microsoft recently expanded their out-of-box warranty to three years from date of sale. "It is reasonable to believe these failure rates will increase over time since the Xbox 360 failure issues tend to increase with prolonged use where overheating appears the main culprit," said SquareTrade CEO Steve Abernethy.

But widespread reports of the red ring and hardware failure hasn't stymied consumer demand for the Xbox 360, which Microsoft says is in short supply in the United States due to a failure to anticipate strong post-holiday demand.

Microsoft games marketing VP Jeff Bell said that the shortage may have an adverse effect on Xbox 360 sales figures. "You could say we misjudged demand," Bell told Reuters. "We're literally out of stock in many stores... It may cause the overall industry number to be down a little bit."

Bell said that while the shortage may carry into February, manufacturing should catch up with demand in the spring.