Xbox Hardware Revenue Fell by 29 Percent, Games and Services Grew by 1 Percent in Latest Quarter

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Microsoft’s recent financial report for the first quarter of fiscal year 2026 shows a slight dip in gaming revenue from Xbox, down 2% to $113 million. This decrease was mainly due to a 29% drop in sales of Xbox consoles themselves. However, this was partially balanced out by continued growth in Xbox games and subscriptions, which increased by 1%.

While growth was only at 1 percent – which Microsoft described as nearly flat compared to the last quarter – the company still reported strong overall revenue of $77.7 billion, an 18 percent increase. This was largely driven by the Cloud division, which generated $49.1 billion in revenue.

Microsoft had a strong beginning to the year, performing better than expected in terms of revenue, operating income, and earnings per share, according to CFO Amy Hood. This success is driven by continued high demand for Microsoft’s Cloud services and unique platform offerings.

So, I was reading an interview with Satya Nadella, the head of Microsoft, and he was talking about where he sees gaming going in the future. Basically, he wants to make it so you can play games everywhere – on any device you can think of. He actually compared it to Microsoft Office, how you can use that on your computer, phone, or online. He really wants to make gaming accessible like that, no matter what platform you’re on.

Now that we’ve completed the Activision acquisition, we’re the leading publisher and want to deliver games as successfully as we do with Office. Our goal is to be present on all platforms – consoles, PCs, mobile devices, cloud gaming services, and even TVs – ensuring gamers everywhere can enjoy our titles.

Nadella explained that the gaming industry’s biggest competition isn’t other games, but rather short-form videos on platforms like TikTok, Instagram, and YouTube. He also emphasized that generating revenue is crucial for funding the innovations needed to keep the industry growing.

Satya Nadella explained that the real competition for gaming isn’t other games themselves, but rather short-form video content. He emphasized that the gaming industry needs to constantly improve how games are made, what kinds of games are created, and how they’re distributed. He believes that maintaining healthy profit margins is key to funding this ongoing innovation.

Recently, Microsoft has been closely monitoring the Xbox division following a series of major purchases. As a result, they’ve set a goal to improve Xbox’s profitability by 30%, a target established last fall by leadership. This push for greater financial responsibility is likely behind the recent decisions to cancel projects, reduce staff, and close some game studios.

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2025-10-30 18:12