Speaking at the Design Automation Conference in California, Bryan Lewis said that the hardware problem on the Xbox 360 was due to Microsoft’s decision to design its own graphics chip, rather than use a third party. This was done in an attempt to save millions of dollars, but as we all know, it ultimately resulted in a PR headache and a $1 billion replacement program for Xbox 360 consoles worldwide.
So there you have it. A poor decision likely prompted by investors looking to lower costs and speed up production. Luckily for more recent 360 owners, the chip at the source of the problem has since been fixed and redesigned, presumably by ATI.