The short version
- Microsoft reported its July to September 2026 results on October 28. Xbox brought in $5.379 billion (about ₹51,100 crore), down 2% from $5.508 billion a year earlier.
- Console hardware revenue fell 14%. Xbox CEO Asha Sharma says demand is ahead of supply, not the other way round.
- Xbox content and services, the line that holds Game Pass and game sales, fell 2% (1% at constant currency). Game Pass and third-party games were down, first-party games were up.
- Microsoft's guidance, as reported from the earnings call, points to content and services growing in October to December, with hardware falling again.
The numbers
Microsoft doesn't report gaming as its own segment any more. Xbox sits inside Devices and Consumer, which made $15.48 billion, down 3%. Within that, the release breaks out an Xbox product line and a single percentage for content and services. Hardware's 14% drop came from coverage of the call and Microsoft's investor materials rather than the press release itself.
Image: Zerocade
Put simply, this was a smaller fall than the one before it. Sharma's own summary on X: Xbox revenue "declined 2% YoY, compared with a 10% decline a quarter ago." Still, outlets tracking the content and services line count this as its fourth quarter in a row below the year before, going back to October to December 2025.
Constant currency, if you're wondering, strips out exchange-rate swings. A 1% drop on that basis means currency movements made the headline number look about one point worse than the business really did.
Why hardware fell so hard
Two things happened at once. Microsoft raised Xbox prices again in August, with the 1TB Series X going up by $150 in the US. And by Sharma's account, consoles were simply hard to get: sales "remain constrained by supply, with more demand than consoles available."
Image: Xbox
On paper those two explanations sit a little awkwardly together. Higher prices usually cool demand, while a supply squeeze means Microsoft couldn't sell as many as it wanted anyway. The bigger backdrop is memory. RAM makers are sending their output to AI data centres, and every console needs a large pool of fast memory. We covered how that's pushing up the price of an RTX 5080, and it hits console makers the same way.
For buyers in India, none of this points towards cheaper Xbox hardware any time soon.
Game Pass and game sales
Content and services is where most of Xbox's money is made now, so its direction matters more than the hardware number. Three forces pulled on it:
- Game Pass revenue went down. Microsoft gave no subscriber count and no revenue figure.
- Third-party game sales went down. That's other publishers' games sold through the Xbox store.
- First-party content went up, partly making up for both. The quarter included Halo: Campaign Evolved in July and Minecraft Dungeons 2 in late September. Sharma also pointed to record numbers for Minecraft and the World of Warcraft: Forever beta.
Image: Zerocade
Sharma added that Xbox's PC platform revenue grew by double digits. That fits the direction Xbox has taken over the past year, putting more of its games on PC and other platforms instead of relying on consoles.
What comes next
The October to December quarter is the one to watch. It includes Call of Duty: Modern Warfare 4, which launched on October 23, plus the holiday season. According to reports of the call, CFO Amy Hood expects content and services to grow by a mid to high single-digit percentage, while hardware declines again. Satya Nadella reportedly said he expects Xbox as a whole to return to growth before Microsoft's financial year ends in June 2027.
Image: Activision
Activision still hasn't shared Modern Warfare 4 sales figures, so Microsoft's next report in late January will be the first real read on how it did. Watch two numbers then: whether content and services finally turns positive, and whether hardware falls further than 14% in a holiday quarter.
