Xbox hardware sales fell significantly last quarter, down 29% according to Microsoft’s latest financial report. The future of Microsoft’s gaming division is currently unclear, with rising prices and a shift away from traditional consoles and exclusive games contributing to the uncertainty. This is clearly reflected in Xbox’s recent earnings.
Microsoft has long focused on software, and this approach has generally been successful. Recently, they announced that Xbox Game Pass generated almost $5 billion in revenue for fiscal year 2025, which helped balance a 22% drop in sales of Xbox consoles and accessories. However, the latest numbers for Xbox suggest things might be becoming less stable.
Xbox Hardware Revenue Falls Amid Declining Console Sales
Xbox gaming revenue decreased significantly in the first quarter of fiscal year 2026, dropping $113 million. This was primarily due to fewer console sales, which caused a 29% decrease in hardware revenue. Although the company launched the ROG Xbox Ally and Xbox Ally X handheld devices this quarter, they weren’t able to prevent the overall decline. Interestingly, hardware revenue also fell by 29% in the same quarter last year, but a large increase (61%) in revenue from games and services balanced it out. This year, however, game and service revenue only grew by 1%.
According to the report, revenue increases in content and services are largely due to the success of Xbox Game Pass and games from other developers. However, a lack of new, exclusive Xbox games limited overall growth. This echoes recent concerns raised by former Blizzard President Mike Ybarra, who questioned the long-term viability of Xbox continuing to produce consoles without a robust schedule of its own games.
Despite a $113 million decrease in gaming revenue, Microsoft’s overall outlook isn’t negative. This drop only represents 2% of the gaming division’s total earnings, and growth in other areas of the “More Personal Computing” category actually boosted overall revenue by 4%, adding $580 million. Xbox is also performing well in Japan, a market where it has historically faced challenges, offering a positive sign for the future. Additionally, the popular Halo franchise will be available on PlayStation in 2026, and it will be interesting to see how this impacts Xbox’s financial performance.
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2025-10-30 17:03