Xbox Hardware Revenue Falls 29% as Cloud Grows

Microsoft’s Xbox hardware revenue fell about 29–30% year‑over‑year in Q1 FY26 (quarter ended Sept. 30), contributing to a $113 million (2%) decline in gaming revenue even as Xbox content and services grew roughly 1%. Content growth was driven by Xbox Game Pass and third‑party titles but was partially offset by weaker first‑party output after studio cuts and high‑profile cancellations, including Perfect Dark and Everwild. The hardware slump has persisted for several quarters amid console and subscription price increases (effective Oct. 2025) and a pivot toward an “Xbox everywhere” strategy emphasizing cloud gaming, cross‑platform publishing and new handheld hardware. Despite the gaming headwinds, Microsoft reported $77.7 billion in revenue (up ~18%) and $27.7 billion in net income (up ~12%), with Microsoft Cloud up roughly 26–28% and Azure up about 40%. Overall, Microsoft’s AI and cloud investments are helping offset weakness in console sales and leaving gaming as a smaller, more volatile piece of company-wide growth.