Xbox hardware sales fell 14% year-on-year in the quarter ending September 30, 2026, according to Microsoft's latest earnings, and Xbox boss Asha Sharma says that's not a demand problem. "Console sales remain constrained by supply, with more demand than consoles available," she posted on X after the results landed. "We're working to get more consoles into players' hands, including through our expanded refurbishment program. We're making progress, with a lot more work ahead."
The broader numbers are a mixed bag. Xbox revenue dropped 2% year-on-year, an improvement on the 10% decline the division posted the previous quarter. The unit brought in $5.379 billion, down from $5.508 billion a year earlier. For scale, Microsoft's Azure cloud business pulled in $33.1 billion in the same three months, about six times what Xbox made.
Content and services revenue, which covers Game Pass and third-party titles, slipped 2% (1% in constant currency). Chief financial officer Amy Hood said that was "driven by declines in third-party content and Xbox Game Pass, partially offset by growth in first-party content." Sharma pointed instead to the wins: Minecraft and World of Warcraft: Forever both had record quarters, the latter thanks to the biggest beta in the franchise's history, and PC platform revenue grew by double digits, though Microsoft hasn't said by how much. She also called Call of Duty: Modern Warfare 4 the franchise's "most acclaimed release in more than a decade."
Satya Nadella, on the earnings call, talked up "one of our strongest first- and third-party lineups in years" heading into the holidays, naming Modern Warfare 4 and Grand Theft Auto 6. He didn't mention Gears of War: E-Day, which came out October 6th and also falls inside that window.
Not everyone is buying the supply story. Kotaku noted that consoles are often sitting in stock at US retailers and on Xbox's own site, and pointed to pushback from fans in markets like Europe, where supply has reportedly been thinner for longer. The shortage, where it is real, traces back to the so-called RAMpocalypse, the memory-chip crunch caused by AI companies including OpenAI, Google, Anthropic and Microsoft itself buying up components, which has pushed console prices up and availability down. That pressure is expected to get worse through 2027.
The results arrive mid-way through a restructuring Sharma has led at Xbox, which has already cost more than 1,800 jobs, with further layoffs and a round of voluntary redundancy still working their way through the company. Sharma said the division's "accountability margin," understood to mean profit margin, improved this quarter.
Microsoft's guidance for the current quarter is muted for a holiday period that includes GTA 6 and Modern Warfare 4 revenue. Hardware revenue is expected to keep falling year-over-year. Looking further out, Microsoft's next Xbox hardware, reportedly codenamed Project Helix, isn't expected before the 2028 holiday season, and a recent report put its likely price between $1,200 and $1,800 unless Microsoft chooses to subsidize it the way it has with past consoles.
Microsoft's cloud business has also drawn boycott calls over its use by the Israeli military, an issue critics link to the war in Gaza. The studio House House recently said it would not sell its game Big Walk on Xbox over the matter, a claim Microsoft has not responded to in detail.
GDFiled by The Games Desk
Consoles, handhelds, PC gaming and the platforms and hardware behind them.
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