Microsoft Xbox revenue falls 2% as hardware drops 14%

Microsoft’s Xbox division brought in $5.38 billion for the quarter ending Sept. 30, 2026, a 2% drop, while hardware revenue fell 14% and content and services revenue declined 2%.

Microsoft’s total revenue reached $92.3 billion for the period, up 19% from a year earlier, while net income climbed to $36.6 billion, a 32% increase. The devices and consumer category, which covers Xbox, fell 3% to $15.5 billion. Microsoft’s operating income increased 21% to $45.9 billion. Xbox revenue for the same period a year earlier was $5.51 billion.

Microsoft’s devices and consumer segment saw its cost of revenue fall 8% because of lower Activision intangible-asset amortization and a 14% hardware revenue drop. Xbox also helped trim operating expenses by 3%, though spending on R&D compute capacity and talent continued.

Xbox chief executive Asha Sharma said more people want consoles than the company can make, and that the division’s accountability margin (a profitability measure) improved. Microsoft is expanding its refurbishment program to get more consoles into players’ hands.

Microsoft’s own investor page, published Oct. 21, reported that gaming revenue decreased $113 million, or 2%, driven by a decline in Xbox hardware and partly offset by gains in Xbox content and services revenue. The investor page reported a 29% decrease in Xbox hardware revenue tied to fewer consoles sold, while the same page put Xbox content and services revenue up 1% against a strong prior-year comparison. Other coverage put the decline at 2% for the same period.

Excluding currency effects, Xbox content and services revenue fell 1%, The Escapist reported, and the result topped Microsoft’s forecast of a mid-single-digit decline. Declines in third-party game sales and Game Pass revenue dragged the category lower, though first-party content sales made gains.

The Escapist, citing Kotaku, said Xbox hardware sales had dropped 13% and 33% in the two quarters before the latest decline. Microsoft increased the price of Xbox Series X and S consoles in the United States on Oct. 3, 2025, then raised prices worldwide on Aug. 1, 2026.

Revenue from Xbox on PC increased by double digits during the quarter. Minecraft reached all-time highs for player engagement and revenue, Sharma said. According to Sharma, Call of Duty: Modern Warfare 4 received the strongest reviews the franchise has seen in over ten years. Sharma has also pointed to the Call of Duty franchise’s $40 billion in lifetime revenue.

Microsoft said Xbox content and services revenue should expand by a mid- to high-single-digit percentage in the fiscal second quarter, with faster growth then and slower growth in the third and fourth quarters. Microsoft expects hardware revenue to decline again year-over-year in the second quarter.

Xbox plans to cut its workforce by 20%, with layoffs scheduled for November and January. The division said in July that a reset could cut as many as 3,200 roles by the end of the fiscal year, with almost 1,900 positions already gone. The Escapist reported that summer reductions eliminated 3,200 jobs and closed four studios.

Microsoft offered voluntary exits to as many as 60,000 employees across the United States, the United Kingdom, Canada, and India earlier in October 2026 and included Xbox staff. Helen Chiang left the Xbox chief operating officer job in October 2026, three months after starting. Her end-to-end profit-and-loss duties across content, hardware, platform, and services are now shared by other Xbox leaders.

On Oct. 15, Microsoft asked players whether Fallout, The Elder Scrolls, and Minecraft should become console-only titles. The survey asks how players would respond if Microsoft removed current Minecraft titles from PlayStation and Nintendo and restricted future updates to Xbox and PC. The survey also includes Doom and Hideo Kojima’s PHYSINT and excludes Call of Duty. It asks whether players would switch to Xbox or skip the games if they are unavailable on PlayStation and Nintendo.

Xbox still plans to release Forza Horizon 6 and Fable on PlayStation 5 next year.

Phil Spencer retired in February 2026, and Asha Sharma took over as chief executive of Microsoft Gaming. Nadella’s mandate calls for Xbox to return to player and revenue growth by the end of fiscal 2027 and to improve margins. Nadella said Microsoft is still focused on making great games and reaching players on whatever platform they prefer, including console, PC, mobile, and cloud.

Microsoft said it heads into the holidays with a strong slate of first- and third-party games, with Modern Warfare 4 and Grand Theft Auto 6 arriving on Xbox next month. Gears of War: E-Day, Minecraft Dungeons 2, and World of Warcraft Forever all reportedly launched strongly.

Microsoft has not shared a new Game Pass subscriber number; the last public figure was 34 million, reported more than two years ago. Sharma reportedly told staff in October that Xbox had begun returning to growth and was making the correct choice to reinvest in the business.

Microsoft’s More Personal Computing segment also saw search and news advertising revenue rise $472 million, or 15%, and 16% excluding traffic acquisition costs. Segment operating income rose $630 million, or 18%, and gross margin increased $763 million, or 11%, while operating expenses increased $133 million, or 4%, driven by investments in AI talent and compute capacity.