Xbox revenue slips 2% and hardware falls 14% as Microsoft posts $92.3B quarter

Xbox revenue fell 2% year over year in the quarter ended September 30, and Xbox hardware revenue fell 14%. Microsoft as a whole posted $92.3 billion in revenue, up 19%, with net income of $36.6 billion, up 32% on a GAAP basis.¹²

The Xbox decline sits inside a Devices and Consumer segment that shrank 3% to $15.5 billion. Content and services, which includes Game Pass, fell 2%, or 1% in constant currency.¹² The drop came from lower third-party content and Game Pass performance, partly offset by growth in first-party content.¹³ Microsoft has still not updated the Game Pass subscriber count, which last stood at 34 million more than two years ago.³

Hardware is where the 14% figure lives, and Xbox chief Asha Sharma gave a supply explanation. Console sales “remain constrained by supply,” she said, with more demand than consoles available. The company is expanding its refurbishment program to get more units out.¹⁴ The drop is tied to a lower volume of consoles sold.⁴

Price is the other variable. Microsoft announced in June that Xbox console prices would rise again from August 1, with the Series X without a disc drive starting at $749.99, citing memory and storage costs that have risen more than 2.5x.⁵ Whether supply or price is doing more of the work on volume is not something the figures settle.

Sharma pointed to the positives. Revenue declined 2% against a 10% decline a quarter earlier. Minecraft and World of Warcraft Forever set records, Call of Duty had its most acclaimed release in more than a decade, and PC platform revenue grew by double digits.¹ Microsoft says Minecraft reached all-time highs in engagement and revenue.¹

The cost side moved too. Cost of revenue for the segment fell 8%, helped by lower amortization of intangible assets from the Activision acquisition and by the hardware decline. Xbox also contributed to a 3% cut in operating expenses.¹ The division is in the middle of a restructuring that has meant a 20% workforce reduction, with more layoffs expected in November and January. Xbox staff were also among up to 60,000 Microsoft employees offered voluntary exit in the US, UK, Canada and India.¹

The outlook line comes from CFO Amy Hood. For the second quarter, Xbox content and services revenue is expected to grow in the mid to high single digits, driven by the timing of third- and first-party launches. Growth should peak in the second quarter, slow in the third and moderate further in the fourth. Hardware revenue in the second quarter should decline year over year.¹

The wider company is doing considerably better. Microsoft Cloud revenue reached $63.9 billion, up 30%, and Azure revenue rose 48%.²³ Windows OEM and devices revenue fell 22%.²

Our read: Xbox is shrinking more slowly than it was, which is an improvement, and the company is leaning on a supply story for hardware while guiding to another hardware decline next quarter. The holiday slate is carrying the growth forecast. Meanwhile the cloud business is large enough that the console line barely registers in the total.

The forecast for Xbox hardware next quarter is down. The forecast for everything else at Microsoft is up.

Footnotes

1. gamesindustry.biz, “Xbox Revenue Falls 2% as Hardware Sales Drop 14% in Q1”. Retrieved October 30, 2026. ↩ ↩² ↩³ ↩⁴ ↩⁵ ↩⁶ ↩⁷ ↩⁸ ↩⁹

2. Microsoft, “Microsoft announces first quarter results”. Retrieved October 30, 2026. ↩ ↩² ↩³ ↩⁴

3. The Verge, “Microsoft reveals strong cloud growth amid financial reporting overhaul”. Retrieved October 30, 2026. ↩ ↩² ↩³

4. Eurogamer, “Xbox leader Asha Sharma says there’s “more demand than consoles available” as Xbox hardware sales dip by 14%“. Retrieved October 30, 2026. ↩ ↩²

5. The Verge, “Xbox prices spike another $100 or more”. Retrieved October 30, 2026. ↩