Asha Sharma says Xbox consoles are supply-constrained as hardware sales fall

Asha Sharma, head of Xbox, said on X/Twitter while discussing Microsoft’s FY27 Q1 results that console sales remain constrained by supply with more demand than consoles available, even as Xbox hardware sales fell 14% year-on-year in FY27 Q1, the three months ending September 30, 2026.

Overall Xbox revenue declined 2% year-on-year in the three months ending September 30, 2026, improving on a 10% decline the previous quarter. Microsoft reported its quarterly financial results as CEO Asha Sharma pursues a reset of the gaming business. Xbox generated $5.379 billion in revenue in FY27 Q1, down from $5.508 billion the previous year, while Azure generated $33.1 billion, about six times more. Xbox remains a large business but is a small part of Microsoft compared with its cloud platform Azure.

Xbox content and services revenue decreased 2%, or 1% in constant currency, driven by declines in third-party content and Xbox Game Pass, partially offset by first-party content growth. Constant currency adjusts for exchange rate movements. The decline in content and services revenue contributed to the overall drop in Xbox revenue. Console sales have struggled for some time amid multiple price increases, and Microsoft has not reported a Series X or S sales figure for years.

Sharma said Xbox’s accountability margin, understood as profit margin, improved this quarter, a metric the summer restructure designed to improve. The restructure involved thousands of layoffs, studios leaving the fold, and projects shut down. Xbox is doubling down on Minecraft, Fallout, and The Elder Scrolls as part of the effort to improve its financial outlook under the restructure.

Minecraft and World of Warcraft: Forever set records, with the WoW Forever beta described as hugely popular. These titles are part of Xbox’s push toward its biggest established franchises.

Neither Activision nor Microsoft announced sales figures for Call of Duty: Modern Warfare 4, instead highlighting its critical acclaim. The publisher is emphasizing critical reception rather than sales numbers for the title. Sharma stated that Call of Duty: Modern Warfare 4 had its most acclaimed release in more than a decade.

The game launched after the Q1 period ended, so its revenue will count in the current quarter. PC platform revenue grew double digits in the quarter, though the exact dollar amount was not disclosed. PC growth contrasts with the declines in Xbox hardware and content and services revenue.

Gears of War: E-Day and Call of Duty: Modern Warfare 4 launched after the end of Q1, so their revenue will be counted in the current quarter. These major releases are expected to boost results in the current quarter.

Microsoft expects Xbox content and services growth in the mid to high-single digits in Q2, strongest in Q2 with deceleration in Q3 and moderation in Q4. IGN and IGN India describe the outlook as muted given the upcoming Grand Theft Auto 6 and Modern Warfare 4 launches. Microsoft expects hardware revenue in Q2 to decline year-over-year. This hardware outlook comes despite the expected surge in demand from Grand Theft Auto 6’s November launch.

IGN reported that Grand Theft Auto 6 is expected to launch in November as a console-only title. The launch is expected to drive a dramatic rise in console sales. The launch comes at a time of hardware shortages and price increases affecting both Microsoft and Sony.

Console prices have risen sharply over the past year because of the RAMpocalypse, with generative AI companies including OpenAI, Google, Anthropic, and Microsoft hoarding RAM and components. AI firms competing for dominance are gobbling up RAM, making hardware harder to obtain and more expensive for end users.

Xbox sent emails to U.S. customers who had not used their console in some time, reminding them they could trade in their Series X or S consoles. The trade-in reminder was part of efforts to move hardware ahead of the holiday season.

Console sales remain constrained by supply, with more demand than consoles available.

Asha Sharma (Xbox CEO, via X/Twitter), IGN