Xbox Q1 hardware sales down 29% while third-party content experiences “better-than-expected performance”

Microsoft has published its financial results for the first quarter of FY26, reporting a 2% decrease in overall gaming revenue and an almost 30% drop in hardware sales.

The numbers

For the three months ended September 30, 2025:

• Revenue: $77.7 billion (up 18% year-on-year)
• Net income: $27.7 billion (up 12% year-on-year)

• More Personal Computing (incl. Xbox) revenue: $13.8 billion (up 4% year-on-year)

The highlights

Overall revenue for Microsoft’s first quarter was driven by its Cloud and AI services, which rose 28% year-on-year to $30.9 billion.

While its More Personal Computing segment (which includes Xbox) increased by 4% to $13.8 billion, overall gaming revenue fell by 2% “driven by a decline in Xbox hardware.”

However, this was offset in part by a 1% growth in Xbox content and services, including gains in Xbox Game Pass and the “better-than-expected performance” of third-party content.

Looking at hardware specifically, Microsoft reported a decrease of 29% driven by a low volume of sales across its product range.

“We delivered a strong start to the fiscal year, exceeding expectations across revenue, operating income, and earnings per share,” said Microsoft CFO Amy Hood. “Continued strength in the Microsoft Cloud reflects the growing customer demand for our differentiated platform.”

Looking ahead to the next quarter, Microsoft expects revenue of between $79.5 billion to $80.6 billion, representing a growth of between 14% and 16%.

As for Xbox content and services, it predicts a revenue decline “in the low to mid-single digits” due to there being less first-party titles compared to the same period last year.

It does note that this may be “partially offset by growth in subscriptions.”

Microsoft’s latest financial results comes in the wake of price hikes across its gaming division.

Last month, it announced that console prices were set to rise for a second time in the US “due to changes in the macroeconomic environment.” This included increases of between $20 to $70 across its hardware range.

At the beginning of October, Microsoft announced it would be increasing the cost of Xbox Game Pass by 50% “to offer more flexibility, choice, and value to all players.”

A report published last week also suggested a 33% rise in the price of Xbox development kits to $2,000.

In the meantime, Xbox president Sarah Bond confirmed that “next-gen hardware is in development.”

“We have a partnership we’ve announced with AMD around it, so that is coming,” said Bond.

“What we saw here was an opportunity to innovate in a new way and to bring gamers another choice, in addition to our next-gen hardware. We are always listening to what players and creators want.

“When there is demand for innovation, we’re going to build it.”