Xbox hardware revenue down 30% for the second year in a row

Per Microsoft's FY26 Q1 earnings, Xbox hardware revenue has dropped by 29% compared to same period a year ago. This mirrors the result from FY25 Q1.

Xbox hardware revenue down 30% for the second year in a row
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TL;DR: Microsoft's Q1 2026 earnings reveal a 29% year-over-year decline in Xbox hardware revenue, mirroring last year's drop amid rising console prices. However, Xbox content and services revenue grew 1%, reflecting a strategic shift toward Game Pass, cloud gaming, and PC-like hardware.

Microsoft has released its Q1 2026 earnings, noting that Xbox hardware revenue is down 29% year over year. Xbox hardware revenue, which covers the Xbox Series X and Xbox Series S consoles, has been in steady decline for a couple of years now, so this isn't all that surprising for those who have been following or keeping track of behind-the-scenes Xbox news.

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What is alarming, at least from an Xbox console perspective, is that this 29% decline in revenue is identical to Microsoft's Q1 2025 earnings, which showed Xbox hardware revenue dropping by the same amount compared to 2024. And with Microsoft recently increasing the price of its Xbox Series X|S hardware to the point that the consoles are no longer competitive with Sony's PlayStation 5 lineup, the expectation is that this downward trend will continue. And possibly, accelerate.

However, it's worth noting that Microsoft's Xbox strategy has moved beyond Xbox hardware for some time. Its current marketing slogan for the brand, 'This is an Xbox,' emphasizes that every device can be an Xbox through Windows 11, Game Pass, and cloud gaming. For Q1 2026, Xbox content and services revenue was up 1%, which includes revenue from Game Pass and publishing first-party titles on PC, Xbox, PS5, and Switch - a better result and more reflective of the Xbox brand shift.

During the earnings call with investors, Microsoft CEO Satya Nadella focused his Xbox comments on the release of new games like Double Fine's Keeper and the recent hardware partnership with ASUS, which led to the launch of the new ROG Xbox Ally X gaming handheld. This reinforces recent industry analysis that points to Xbox becoming more of a publishing giant, with custom Xbox hardware that will become increasingly PC-like over time.

In the immediate future, with the recent Xbox Game Pass price hike and the upcoming Call of Duty: Black Ops 7 juggernaut facing stiff competition from EA and Battlefield 6, it will be interesting to see what effect this has on Xbox content and services revenue for the upcoming holiday season.