Xbox Revenue Falls 2% as Hardware Revenue Drops 14% and Game Pass Struggles

Microsoft has revealed another setback for Xbox, with hardware revenue falling 14% in its latest quarterly results. The decline comes as the company continues reshaping its gaming business and expanding beyond traditional consoles. Meanwhile, its cloud and AI businesses are surging.

Xbox hardware takes another hit as revenue falls

Xbox continues struggling despite Microsoft’s strong overall financial performance. The company reported $5.38 billion in Xbox revenue for the first quarter of fiscal 2027. That represents a 2% decline compared with the same period last year.

Xbox hardware revenue dropped 14%, highlighting the pressure facing Microsoft’s console business. Meanwhile, Xbox content and services revenue also declined 2%. Microsoft attributed the latter decline to lower third-party content and Game Pass revenue, partially offset by growth in first-party games.

The results cover the quarter ended September 30, 2026. They also arrive after Xbox Series X|S sales recorded another difficult period in the United States. According to Circana figures reported earlier this month, console sales fell 27% year over year in September.

Xbox needs stronger hardware momentum

Interestingly, Microsoft’s overall revenue reached $92.3 billion, marking a 19% year-over-year increase. Net income also climbed 32% to $36.6 billion. Azure remained a major growth driver, generating $33.2 billion in revenue after increasing 48%.

The contrast puts Xbox’s latest performance into perspective. Microsoft’s cloud business continues expanding rapidly, while its gaming hardware and content businesses face declining revenue. However, the figures alone don’t establish why individual players are buying fewer consoles.

Microsoft has been pursuing a broader gaming strategy that includes consoles, PC gaming, subscriptions, and other ways to access its games. Its next-generation hardware plans also remain part of the company’s longer-term direction. For now, the latest earnings show that Xbox hardware remains under pressure. Whether upcoming releases and Microsoft’s wider platform strategy can reverse the decline remains to be seen.