Xbox hardware revenue dropped a considerable 29% in the last quarter, according to its latest financial report. Microsoft's gaming segment faces something of an uncertain future amid price hikes and a move away from conventional consoles and platform exclusivity. That uncertainty is on full display in Xbox's earnings from the past quarter.
Microsoft has embraced a software-first strategy for a while now, and it's often paid off for the company. At the end of fiscal year 2025, the gaming giant revealed that Xbox Game Pass had hit a new revenue record, earning nearly $5 billion to offset a 22% year-over-year decline in hardware revenue. However, more recent Xbox figures may appear a little shakier.
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Xbox Hardware Revenue Falls Amid Declining Console Sales
According to a quarterly financial report filed with the SEC, overall Xbox gaming revenue is down a whopping $113 million in Q1 FY26. Most of that drop came from falling console sales, which led to the 29% decrease in hardware revenue. While shrinking console sales may be expected to an extent, the company did release the ROG Xbox Ally and Xbox Ally X this past quarter, but the handhelds were not enough to stop the drop. Interestingly, Xbox hardware revenue fell by the exact same percentage in Q1 FY25, too, but that decline was offset by a 61% uptick in content and services. This time around, the Xbox content segment grew by just 1%.
The report says the growth in content and services comes mostly from strong Xbox Game Pass and third-party game growth. However, a decline in first-party content held it back, which calls to mind ex-Blizzard President Mike Ybarra's criticisms of the "This is an Xbox" strategy, where he cast doubt over the idea of continuing to make consoles without a strong lineup of first-party games.
Still, it's not all doom and gloom for Microsoft. While a $113 million drop is substantial, it represents a mere 2% of the gaming segment's total revenue, and the other segments within Microsoft's "More Personal Computing" category grew enough to drive a 4% increase in revenue, equal to $580 million. Microsoft Gaming CEO Phil Spencer has also said Xbox is seeing strong growth in Japan, a market it has struggled to compete in previously, which could instill more faith in the road ahead. The Halo franchise is coming to PlayStation for the first time in 2026, too, so it will be interesting to see if and how that affects Xbox's future finances.
- Brand
- Microsoft
- Original Release Date
- November 10, 2020
- Original MSRP (USD)
- $499
- Operating System
- Proprietary (Windows-based)
- Processor
- Custom AMD 8-core Zen 2 3.8 GHz
- Resolution
- 720p - 4K UHD
Source: Microsoft