Microsoft’s latest results show a sharp divide between its overall business and Xbox. While the technology company reported a major profit increase for the quarter, its gaming operation recorded double-digit year-on-year declines during a period of strategic change and continuing large-scale layoffs.
Microsoft’s fourth-quarter earnings materials put the decline in two key areas. Xbox content and services revenue fell 10 per cent compared with the same quarter a year earlier, while Xbox hardware revenue dropped 13 per cent. That reverses the 13 per cent year-on-year quarterly growth recorded by content and services during the equivalent period in 2025.
A difficult full-year result
The complete fiscal-year figures are weaker still. Microsoft said Xbox revenue declined by $1.7 billion, or 7 per cent, with both content and services and hardware contributing to the fall.
Xbox content and services revenue was down 5 per cent against the previous year. Microsoft noted that the comparison was affected by strong first-party software performance in the prior period, although growth in Xbox Game Pass partly offset the decline. Hardware revenue fell 29 per cent, driven by a lower number of consoles sold.
Layoffs and a narrower first-party strategy
The financial result has arrived alongside substantial cuts across Xbox, including approximately 1,600 layoffs expected to take place over the following 12 months. New Xbox CEO Asha Sharma has indicated that the company is changing where it directs investment.
That approach includes reducing support for smaller studios producing more niche games while placing greater emphasis on major franchises such as The Elder Scrolls and Fallout. The result also follows a particularly difficult year for Call of Duty: Black Ops 6.
Microsoft spent more than $70 billion acquiring Activision Blizzard in 2023. The publisher operates across multiple business units and is substantially larger than Xbox’s existing first-party studio group, making the acquisition an important part of the company’s wider gaming strategy.
Higher console prices add pressure
Xbox has also raised console prices repeatedly as Microsoft commits tens of billions of dollars to the race to build AI hyperscaler infrastructure. The standard Xbox Series X now costs $750, representing a 33 per cent increase over its launch price in 2020.
Microsoft is working on its next-generation Project Helix hardware, but the company is reportedly still losing money on every Xbox console sold, even after the price increases. That makes a recovery in console market share difficult to assess—and raises the question of whether winning back that share remains a central priority.
For Australian players considering a dedicated setup, the broader hardware market is worth viewing separately from Microsoft’s financial performance. Our arcade machine buying guide covers the practical considerations involved in choosing a cabinet, while upright arcades and bartop arcades suit different spaces and budgets. Readers planning a custom project can also explore DIY arcade kits and arcade repair services.
Leave a Reply