Xbox Hardware Sales Plummet as Competition Rises

Xbox Sales Decline Continues Despite Efforts to Adapt

The downward trend in Xbox sales has persisted for Microsoft, with the recent Q1 2026 earnings report showing a 29 percent decrease in hardware revenue compared to the previous year. This follows a pattern of consecutive declines, with a 22 percent drop in the last quarter and even larger decreases in previous periods.

Price Hikes and Strategy Shifts in Response to Economic Challenges

Facing challenges from tariffs and inflation, Microsoft has raised prices on gaming hardware, including the Series X starting at $599.99. The company has shifted its focus towards an “Xbox everywhere” strategy, which has shown some success in content and services growth, albeit minimal at one percent year over year.

Mixed Results and Future Outlook for Microsoft

Despite efforts to boost revenue, Microsoft anticipates further declines in Xbox hardware sales and modest growth in content and services. The company’s pursuit of 30 percent profit margins in this segment has led to restructuring, including layoffs and project cancellations. The outlook for Q2 remains challenging.

Diversification and Growth in Other Business Divisions

While Xbox faces struggles, Microsoft has seen hardware growth in Windows OEM and Devices, with a modest 6 percent increase in revenue year over year. Surface earnings, however, are no longer reported separately, making their performance unclear after a period of decline.

The Power of Azure and Cloud Services in Microsoft’s Success

In contrast to its hardware challenges, Microsoft’s Azure and cloud services continue to drive significant growth. Intelligent cloud services revenue grew by 28 percent to $30.9 billion, with Azure specifically showing a 40 percent increase. Overall, Microsoft’s cloud revenue reached $49.1 billion, up 26 percent from the previous year.

Overall Financial Performance and Future Prospects for Microsoft

Despite challenges in certain segments, Microsoft reported a strong overall performance, with $77.7 billion in revenue for the quarter, an 18 percent increase year over year. Net income also rose by 12 percent to $27.7 billion. The company’s cloud offerings, productivity, and business processes remain key contributors to its income, totaling $33 billion.

Update, October 29th: This article was updated with details from Microsoft’s earnings call. The headline was also updated to specify that it was hardware sales that were down.