Xbox hardware revenue tanks to lowest point of Xbox Series generation

Microsoft confirms that its gaming hardware revenues are down significantly as consumers are buying fewer Xbox consoles.

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Microsoft's latest Q3 results delivered both good and bad news for Xbox. The good news is that revenues are up +50% to $5.451 billion, driven by content & services, and that Xbox has now made more than it ever has before. The bad news? Hardware earnings are down, this time dropping by 31%.

Xbox consoles generated $429 million in revenue for the Q3 period, representing just 8% of the total quarterly amount. "Xbox hardware revenue decreased 31% driven by lower volume of consoles sold," reads Microsoft's new 10-Q SEC filing. While Microsoft may be getting outpaced on the hardware front, it's doing very well when it comes to gaming software and services.

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Content & services--includes Xbox Game Pass, full game sales, microtransactions, etc.--made up 92% of Xbox's total Q3 earnings, or $5.022 billion out of the total $5.451 billion earned. This transition from hardware to software gives Microsoft more high-margin business segments, especially since Xbox hardware is produced and sold at a loss.

Things aren't going to be any better for Q4, though. Microsoft expects hardware to drop even further.

"Hardware revenue will decline again year-over-year," Microsoft Chief Financial Officer Amy Hood said in the earnings call.

Despite the lower performance of Xbox console sales, Microsoft remains committed to the brand and has no plans to stop making consoles. The company has promised that its next-generation Xbox system will deliver the "largest technical leap" in video game console history.

We've theorized that the future of Xbox hardware could be fragmented, complete with an Xbox handheld, an Xbox console, and perhaps even some sort of iteration of the Xbox cloud streaming receiver/HDMI stick that had originally been in development since 2016 but was recently scrapped.