Microsoft reports a drop in Xbox hardware revenue and weak growth in services due to a fall in domestic content
Microsoft sees Xbox revenue fall and services stagnate after a drop in in-house content - what does this reveal about the future of gaming?
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He will discover that Microsoft brought a report that doesn't excite Xbox. The recipe for hardware suffered a sharp drop. The recipe for content and services grew by leaps and bounds very modest, with Game Pass helping, but was overshadowed by the loss of own content. At the same time cloud and Azure follow in strong growthcreating a clear contrast. For more details, see the original report: https://www.gamesradar.com/games/microsoft-reports-xbox-hardware-revenue-down-29-percent-and-1-percent-growth-in-content-and-services-like-game-pass-blunted-by-a-decline-in-first-party-content/
Microsoft records sharp drop in Xbox hardware revenue; games revenue virtually stable
Microsoft has released results for the first quarter of fiscal year 2026 (FY26 Q1) that show a sharp drop in Xbox hardware revenue and very limited growth in gaming services. Total gaming revenue was virtually flat, while cloud and AI services continue to rise strongly. The full report can be found at: https://www.gamesradar.com/games/microsoft-reports-xbox-hardware-revenue-down-29-percent-and-1-percent-growth-in-content-and-services-like-game-pass-blunted-by-a-decline-in-first-party-content/
Key figures
- Xbox hardware recipe: fall of 29%, due to the lower volume of consoles sold.
- Total gaming revenue: reduction of US$ 113 million or 2% compared to the same period last year.
- Xbox content and services: increase in 1%driven by Game Pass and third-party content, but affected by lower production of own titles.
- Microsoft Cloud: growth of 26%.
- LinkedIn: high 10%.
- Azure: expansion of 40%.
Context and comparison with the previous year
The decline in hardware follows a trend that the company has been recording for years. This quarter's figures are compared to the same period in the previous fiscal year, when accounting for the acquisition of Activision Blizzard sharply increased gaming revenue. In that previous quarter, gaming revenue rose by around 43% due to titles such as Call of Duty, World of Warcraft and Candy Crush. Even in this strong comparison, the drop in 29% in hardware had already appeared in the previous quarter.
(Further reading and detailed analysis of the report: https://www.gamesradar.com/games/microsoft-reports-xbox-hardware-revenue-down-29-percent-and-1-percent-growth-in-content-and-services-like-game-pass-blunted-by-a-decline-in-first-party-content/)
Impact and trends
Microsoft continues to raise console prices, a measure that may improve margins, but doesn't solve the drop in sales volume. Meanwhile, the substantial growth of the cloud and AI businesses shows where the company has been shifting investment and operational focus. Analysts and investors tend to prefer the figures for cloud services, given the rapid pace of expansion in these areas.
Callout: The hardware slowdown contrasts with the robust performance of Azure and Microsoft Cloudwhich continue to be the main drivers of the company's growth.
What this means for players and investors
- For gamers: less dependence on own releases may reduce the exclusive offer of first-party titles, but the Game Pass and third-party partnerships maintain a constant flow of content.
- For investors: the strategy points to recurring revenue and more predictable margins from cloud and services, while the console segment remains volatile.
- Key risk: continued decline in hardware sales could limit platform exposure and reduce competitive advantages in exclusive ecosystems.
Conclusion
It is clear that sea of contrastswhile Xbox faces a 29% drop in the hardware, a Microsoft Cloud and Azure continue in strong growth. Total gaming revenue was practically stable. Game Pass helps, but the loss of own content limits earnings.
In short, the company is changing tack: less dependence on consoles, more focus on cloud e AI like a ship correcting its sail to catch more favorable winds. Analysts will be watching the next few quarters for confirmation of this new course.
Read the full report at: https://www.gamesradar.com/games/microsoft-reports-xbox-hardware-revenue-down-29-percent-and-1-percent-growth-in-content-and-services-like-game-pass-blunted-by-a-decline-in-first-party-content/
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