Xbox hardware revenue fell a whopping 29% last quarter, according to its latest financial report. Microsoft's gaming segment faces something of an uncertain future amid rising prices and a shift away from conventional consoles and platform exclusivity. This uncertainty is on full display in Xbox's earnings for the most recent quarter.
Microsoft has adopted a software-first strategy for some time now, and it often pays off for the company. At the end of fiscal 2025, the gaming giant revealed that Xbox Game Pass hit a new revenue record, earning nearly $5 billion to offset a 22% year-over-year decline in hardware revenue. However, the more recent Xbox data may seem a bit shaky.
Xbox hardware revenue falls as console sales decline
According to a quarterly financial report filed with the SEC, total revenue from Xbox games fell by a whopping $113 million in the first quarter of FY26. Most of that decline came from declining console sales, which led to a 29% drop in hardware revenue. While a decline in console sales can be expected to some extent, the company released the ROG Xbox Ally and Xbox Ally X last quarter, but the handhelds weren't enough to stop the decline. Interestingly, Xbox hardware revenue fell by exactly the same percentage in Q1 FY25 as well, but this decline was offset by a 61% increase in content and services. This time, the Xbox content segment grew by just 1%.
The report said growth in content and services came primarily from strong Xbox Game Pass and growth in third-party games. However, the decline in first-party content has held it back, reminiscent of former Blizzard president Mike Ybarra's criticism of the “This is an Xbox” strategy, where he questioned 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 the $113 million drop is significant, it represents just 2% of the gaming segment's total revenue, and other segments in Microsoft's “multi-PC” category grew enough to post a 4% increase in revenue, equal to $580 million. Microsoft Gaming CEO Phil Spencer also said Xbox is seeing strong growth in Japan, a market it has previously struggled to compete in, which could instill more confidence going forward. The Halo the franchise is coming to PlayStation for the first time in 2026 as well, so it will be interesting to see if and how this affects Xbox's future finances.
- Mark
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Microsoft
- Original release date
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November 10, 2020
- Original MSRP (USD)
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499 dollars
- Operating system
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Proprietary (Windows based)
- Processor
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Custom 8-core AMD Zen 2 3.8 GHz
- Resolution
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720p – 4K UHD
Source: Microsoft
