Xbox hardware revenue falls 14% after strategic reset

Microsoft’s earnings report showed that Xbox hardware revenue fell 14 percent year-over-year in the fiscal first quarter ending September 30, 2026. The decline matches earlier periods rather than showing a turnaround after Asha Sharma announced what she called “the most significant restructure in Xbox history.” The persistent hardware sales decline matters for U.S. console players as Microsoft shifts focus to multiplatform releases and services.

Sharma insisted that supply constrains console sales, with more demand than available consoles. Xbox is expanding its refurbishment program to get more consoles into players’ hands. Microsoft projected Xbox content and services revenue to grow in the mid to high single digits in the second quarter of fiscal 2027, while hardware revenue declines year-over-year.

Xbox content and services revenue declined 2% year-over-year in the same quarter, driven by lower third-party content sales and lower Xbox Game Pass revenue. A Game Pass price cut took effect in April 2026.

Sharma stated that the 2% revenue decline represents a major improvement compared to the 10% decline in the previous quarter.

The restructuring includes cutting up to 3,200 roles by July 2027, with over 1,600 already eliminated. Microsoft separated beloved Microsoft-owned studios from the company during the reset.

The restructuring targets a maximum of three management layers between studios and leadership.

Helen Chiang departed as Xbox chief operating officer after three months in October 2026. Chiang had spent 21 years at Microsoft, including six years as head of Mojang. Asha Sharma became CEO of Microsoft Gaming in February, replacing Phil Spencer, who retired.

Sharma said Xbox would invest as much in the platform as ever, but with greater focus, discipline, and clarity. She told employees at a company-wide town hall that the company was beginning its return to growth after being in “freefall” for months.

Xbox hardware sales fell 33% year-over-year through August 2026, reaching an all-time low. PlayStation hardware sales were down 25% year-over-year for 2026 year-to-date through August, marking the platform’s worst performance since 2013. Xbox console average price rose 26% to $529, while PlayStation average price rose 20% to $597.

The Xbox Series S 512GB costs $500 in 2026, up from $300 at launch, while the 1 TB version costs $600. PlayStation 5 Digital rose from $400 to $600, Disc from $500 to $650, and Pro from $700 to $900. Console prices are at all-time highs while sales are at all-time lows, with players asked to spend around $200 more than at launch six years into an aging console generation.

The next console generation is reportedly delayed, with Xbox planning a Helix hardware family and Sony developing the PS6.

In Japan, Famitsu data showed 312 Xbox Series X, 202 Xbox Series X Digital Edition, and 67 Xbox Series S units sold for the week ending October 25, 2026. The previous week ending October 18, 2026, recorded 43 Series X, 132 Series X Digital Edition, and 54 Series S.

Xbox sent emails to U.S. customers in October 2026 encouraging trade-ins of Series X or S consoles.

Xbox hardware revenue fell 13% in the previous quarter and 33% in the quarter before that, continuing a multi-quarter decline. The latest figure is part of a longer downward trend rather than a new development caused by the reset.

Grand Theft Auto 6 is expected to launch in November 2026 exclusively on PlayStation and Xbox. Microsoft projected content and services revenue growth in the second quarter of fiscal 2027, though hardware revenue should decline year-over-year. Xbox growth is expected to be strongest in the second quarter, with deceleration in the third and further moderation in the fourth.

Minecraft and World of Warcraft Forever set records in 2026, with the World of Warcraft beta especially popular. Call of Duty: Modern Warfare 4 received critical acclaim and boosted Xbox PC revenue by double digits. The Call of Duty franchise has surpassed $40 billion in lifetime revenue.

Xbox last reported Game Pass subscribers at 34 million, over two years ago, and has not provided an update since.

Xbox content and services revenue decreased 1% in constant currency, adjusted for exchange-rate changes, partially offset by growth in first-party content. Microsoft has not reported a sales figure for Xbox Series X and Series S consoles for years.

Azure revenue of $33.1 billion was six times the $5.379 billion Xbox revenue in the quarter ending September 30, 2026. Xbox brought in $5.379 billion for the quarter, compared with $5.508 billion in the same quarter a year earlier.