Xbox console sales down 30%, hardware only represents 9% of Microsoft's gaming revenue

Xbox hardware revenues decrease in the Q1'25 period and ultimately make up a small proportion of earnings.

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Microsoft recently reported its Q1 Fiscal Year 2025 results that showed significant year-over-year growth for the Xbox brand. The games division raked in a total of $5.621 billion during Q1, with content and services raking in about 91% of earnings during the quarter. This growth was driven by the recognition of Activision Blizzard King earnings which had not been previously included during last year's Q1 period ($3.919 billion revenue).

Hardware, on the other hand, made $532 million, or 9% of the total. That's a large -31% year-over-year decrease from a year ago's $758 million, but a substantial +54% raise in quarter-over-quarter revenues (Q4'24 delivered just $345 million in HW).

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Microsoft's upcoming Q2'25 period, which runs from October - December 2024, will be critical in both hardware and content & services revenues and may see spikes across both to reflect new first-party games and console variants.

The hardware drops are expected to continue through holiday, which is interesting and may indicate that Microsoft is reducing or has reduced console production in a bid to stabilize the losses of each system. Xbox hardware is produced and sold at a loss, and for Microsoft, the profit comes from game sales, services/subscriptions, and microtransactions.

It appears that Microsoft is attempting to reduce losses from unprofitable segments while boosting the more profitable, high-margin business like Xbox Game Pass and first-party game sales. Microsoft has meanwhile touted that the next generation of Xbox hardware will deliver the "largest technical leap" in console history.