Xbox Hardware Sales Keep Falling, Down 29% in Microsoft’s Latest Quarter

Microsoft has started fiscal year 2026 on a strong note, posting $77.7 billion in revenue for the first quarter. It saw a jump of an 18% jump from the same period last year. Operating income soared to $38 billion, up 24%, while net income rose 12% to $27.7 billion.

The company’s ongoing success is largely driven by rapidly expanding cloud business. Microsoft Cloud revenue stand at $49.1 billion, up 26% year over year.

But while the cloud is thriving, Xbox hardware sales continue to tumble. Per the latest earnings report, sales fell by 29% year over year. That’s another tough quarter following a 22% drop last quarter and a 42% decline in Q4 2024.

Well, there are multiple reasons to it. Microsoft has raised console prices and Xbox division was hit by mass layoffs earlier this year, possibly because Microsoft pushed it to bring in 30% profits.

While, the company is trying to change the narrative by hinting at premium Xbox experience and first-party consoles, the damage has been done. Adding to that Xbox content and services revenue was flat this quarter, up just 1% year over year.

That said, commercial remaining performance obligations also surged 51% to $392 billion, showing the growing demand for long-term cloud commitments. Moreover, Azure and other cloud services have also helped Microsoft to keep the momentum, as they saw an increase of 40% year over year.