Xbox gross sales have been tanking for some time now — and the story hasn’t gotten any brighter. Microsoft simply launched its Q1 2026 earnings and Xbox {hardware} income was down 29 p.c year-over-year. Final quarter, it was down 22 p.c. Down 29 p.c within the first two quarters of 2025, down 42 p.c in This fall of 2024… You get the image.
As tariffs and inflation take their toll, Microsoft has dramatically elevated the costs on its gaming {hardware}, with the Sequence X now beginning at $599.99. Microsoft’s response has been to deemphasize the console and pursue an “Xbox in every single place” technique. That has yielded some success on the content material and providers entrance, although income there was largely flat this quarter, solely rising one p.c 12 months over 12 months.
Microsoft would clearly prefer to see extra progress there. The corporate has reportedly been pursuing dramatic 30 p.c revenue margins there, resulting in layoffs and cancelled initiatives. However the firm’s outlook for Q2 isn’t a lot rosier. It expects Xbox {hardware} income to proceed to say no, and content material and providers to proceed low-single digits progress.
Microsoft did see {hardware} progress from Home windows OEM and Gadgets, with income growing a modest 6 p.c 12 months over 12 months. The corporate stopped reporting Floor earnings individually, so it’s unclear how these units are performing. They’d been on a gradual decline for a number of years.
It’s Azure and cloud providers that stay the driving pressure behind Microsoft’s ascent. The expansion of its clever cloud providers is substantial. Income elevated 28 p.c 12 months over 12 months to $30.9 billion, with Azure particularly rising 40 p.c.
Extra broadly, Microsoft Cloud income was $49.1 billion, a rise of 26 p.c from Q1 2025. The corporate’s cloud divisions and Azure have been rising steadily for a number of years now.
In whole, Microsoft reported $77.7 billion in income for the quarter, up 18 p.c from the identical time final 12 months. And its web earnings was $27.7 billion, up 12 p.c. Whereas these will increase are largely pushed by the corporate’s numerous cloud choices, its productiveness and enterprise processes nonetheless account for a good portion of its earnings ($33 billion).
Replace, October twenty ninth: This text was up to date with particulars from Microsoft’s earnings name. The headline was additionally up to date to specify that it was {hardware} gross sales that have been down.
