Xbox hardware sales fell 14 percent during the first quarter of fiscal year 2027, driven by a lower volume of consoles sold. Xbox leader Asha Sharma reported that overall Xbox revenue declined 2 percent year on year as first-party hits helped offset declines in third-party content and Xbox Game Pass.
Microsoft reported its financial results for the quarter ending September 30, 2026, revealing familiar pressures alongside notable bright spots for its gaming division. While overall corporate revenue climbed 19 percent to reach $92.3 billion and net income jumped 32 percent to $36.6 billion, the story inside the devices and consumer segment told a different tale of hardware struggles and software resilience.
In Q1, XBOX revenue declined 2% YoY, compared with a 10% decline a quarter ago, while our accountability margin improved. Minecraft and WoW Forever set records, Call of Duty had its most acclaimed release in more than a decade, and our PC platform revenue grew double digits.…
How Software Performance Softened the Hardware Slump
Total Xbox revenue dipped 2 percent year-on-year, though that figure represents a marked recovery from the 10 percent drop recorded the previous quarter. Content and services revenue also slipped 2 percent, hampered by a drop in third-party offerings and lower performance from Xbox Game Pass. Those declines were partially offset by strong growth in first-party content.
Minecraft delivered record-breaking numbers, according to company disclosures. At the same time, PC platform revenue expanded by double digits, and Blizzard’s World of Warcraft: Forever fueled high engagement with its largest beta in franchise history.
Supply Bottlenecks Limit Xbox Console Sales
Hardware sales dropped 14 percent compared to the same period last year, continuing a multi-quarter slide for Xbox consoles. Yet executive leadership insists the drop stems from inventory limits rather than a lack of consumer interest. Taking to social media following the earnings release, Xbox CEO Asha Sharma addressed the supply bottleneck directly.
Console sales remain constrained by supply, with more demand than consoles available. 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.
Asha Sharma, Xbox CEO, via X
Component shortages have driven up hardware costs across the gaming industry over the past year. Generative artificial intelligence developers have intensified competition for high-end components like RAM, driving up prices and limiting manufacturing volume for Microsoft.
Microsoft Cuts Xbox Jobs to Improve Profitability
The latest results arrive as Microsoft executes a sweeping restructuring of its gaming division. Sharma announced significant organizational changes earlier this year, eliminating more than 1,800 jobs to improve profitability. Microsoft Chief Financial Officer Amy Hood noted that operating expenses within the wider devices and consumer division dropped 3 percent, driven by reductions across the Xbox business, though those savings were partly offset by continued investments in research, development compute capacity, and talent.
What Lies Ahead for the Holiday Release Calendar
Leadership expects momentum to pick up as a crowded holiday release slate rolls out. Recent heavy hitters like Gears of War: E-Day and Modern Warfare 4—which achieved the best reviews for a Call of Duty game in over a decade—arrived just after the close of the first quarter. Executives also look forward to the launch of Grand Theft Auto 6 next month.
Microsoft CFO Amy Hood projected that Xbox content and services revenue will grow in the mid to high-single digits for the second quarter, buoyed by major first- and third-party publishing schedules. Even so, hardware revenue is expected to decline again year-over-year as supply constraints persist.
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