Xbox Hardware Sales See 29% Decline, While Third-Party Content Performs Above Expectations

Microsoft has released its Q1 FY26 financial report, revealing a 2% decline in overall gaming revenue and a nearly 30% drop in Xbox hardware sales. Key highlights for the quarter ending September 30, 2025, include: Revenue of $77.7 billion, up 18% year-over-year, and net income of $27.7 billion, up 12% year-over-year. The More Personal Computing segment, which encompasses Xbox, saw revenue of $13.8 billion, a 4% increase year-over-year. Microsoft's Cloud and AI services drove the company's overall revenue growth, rising 28% to $30.9 billion. Despite a decline in Xbox hardware sales, a 1% growth in Xbox content and services, fueled by Xbox Game Pass and strong third-party content performance, helped mitigate the losses. The 29% decline in hardware sales was attributed to low sales volumes across the product range. Microsoft CFO Amy Hood noted that the company 'delivered a strong start to the fiscal year, exceeding expectations.' The company forecasts revenue of $79.5 billion to $80.6 billion for the next quarter, representing 14% to 16% growth. Xbox content and services revenue is expected to decline in the low to mid-single digits due to fewer first-party titles, but this may be partially offset by subscription growth. Recent price increases across the gaming division and the announcement of next-gen hardware development are also notable.