Xbox Hardware Sales Drop 29% as Third-Party Games Thrive
▼ Summary
– Microsoft reported 18% year-over-year revenue growth to $77.7 billion, driven by a 28% increase in Cloud and AI services.
– Gaming revenue declined 2% overall, with Xbox hardware sales dropping 29% while Xbox content/services grew 1%.
– Microsoft announced price increases across gaming products, including Xbox consoles, Game Pass subscriptions, and development kits.
– The company forecasts low-to-mid single-digit declines in Xbox content revenue next quarter due to fewer first-party game releases.
– Xbox president confirmed next-generation hardware is in development through a partnership with AMD.
Microsoft’s latest financial report reveals a mixed performance for its gaming division, with a notable slump in Xbox hardware sales contrasting with steady growth in its services and third-party game offerings. For the first quarter of the fiscal year 2026, the company posted total revenue of $77.7 billion, marking an 18 percent increase compared to the same period last year. Net income also climbed to $27.7 billion, a 12 percent year-on-year rise. Within the More Personal Computing segment, which includes Xbox, revenue reached $13.8 billion, up 4 percent overall. However, gaming-specific revenue dipped by 2 percent, primarily driven by a sharp 29 percent decline in Xbox hardware sales.
This downturn in console sales was somewhat balanced by a 1 percent uptick in Xbox content and services revenue. Key contributors to this area included Xbox Game Pass subscriptions and stronger-than-anticipated performance from third-party titles. Microsoft Chief Financial Officer Amy Hood highlighted the company’s robust overall results, stating, “We delivered a strong start to the fiscal year, exceeding expectations across revenue, operating income, and earnings per share.” She attributed much of the success to continued demand for Microsoft’s cloud offerings, which saw revenue jump 28 percent to $30.9 billion.
Looking forward, Microsoft projects total revenue between $79.5 billion and $80.6 billion for the upcoming quarter, representing growth of 14 to 16 percent. For Xbox content and services, however, the company anticipates a slight decline in the “low to mid-single digits,” citing a lighter lineup of first-party game releases compared to the prior year. Still, this dip may be partly cushioned by ongoing growth in subscription services.
These financial results follow several recent price adjustments within Microsoft’s gaming business. Last month, the company raised console prices in the United States for the second time, citing changes in the macroeconomic climate. Increases ranged from $20 to $70 across various hardware models. In early October, Microsoft also announced a 50 percent price hike for Xbox Game Pass, explaining the move as an effort to provide “more flexibility, choice, and value to all players.” A separate report indicated a 33 percent increase in the cost of Xbox development kits, bringing the price to $2,000.
Amid these shifts, Xbox President Sarah Bond confirmed that next-generation hardware is currently in development. “We have a partnership we’ve announced with AMD around it, so that is coming,” Bond stated. She emphasized the company’s commitment to innovation and responsiveness to gamer and creator feedback, adding, “When there is demand for innovation, we’re going to build it.”
(Source: Games Industry)
