Xbox CEO Asha Sharma has stated that console sales are currently limited by supply, with "more demand than consoles available." This assertion comes as Microsoft's gaming division faces a challenging financial period, with Xbox hardware sales declining 14% year-on-year for the three months ending September 30, 2026. Overall Xbox revenue saw a 2% decrease, an improvement from the 10% decline in the previous quarter.
The company reported that Xbox content and services revenue also experienced a slight downturn, decreasing by 2% and 1% in constant currency. This dip was attributed to reduced sales of third-party content and Xbox Game Pass subscriptions, though growth in first-party content offered some offset. Microsoft has not released specific sales figures for the Series X and S consoles in several years, a trend that continues despite a series of price increases.
Despite these figures, Xbox remains a significant business for Microsoft, generating $5.379 billion in the reported quarter. However, this revenue stream is considerably smaller than the company's cloud computing platform, Azure, which brought in $33.1 billion during the same period.
Sharma highlighted improvements in Xbox's "accountability margin," which is understood to refer to profit margin. This financial goal has been a driving force behind recent restructuring efforts, including workforce reductions, studio divestments, and project cancellations. Xbox is now focusing on its major franchises like Minecraft, Fallout, and The Elder Scrolls to bolster its financial performance. Minecraft and World of Warcraft: Forever (particularly its beta) reportedly set records, while Call of Duty: Modern Warfare 4 received critical acclaim, described by Sharma as "Call of Duty's most acclaimed release in more than a decade." PC platform revenue also saw double-digit growth, though specific figures were not disclosed.
Sharma reiterated the supply issue, stating, "We're working to get more consoles into players' hands, including through our expanded refurbishment program. We're making progress, with a lot more work ahead." This comes amidst reports of Xbox reaching out to customers who haven't used their consoles recently, encouraging trade-ins. The global shortage and increased prices of components, particularly RAM, exacerbated by demand from AI companies, have impacted hardware availability across the industry. This situation poses a challenge for both Microsoft and Sony as they head into the crucial holiday season, with the upcoming launch of Grand Theft Auto 6 expected to drive significant interest in consoles.
Looking ahead to the second quarter, Microsoft's outlook for Xbox is cautiously optimistic. The company anticipates mid-to-high single-digit growth in Xbox content and services, driven by new game releases. Hardware revenue, however, is expected to decline year-over-year in Q2. Sharma acknowledged that while growth is expected to be strongest in Q2 due to content launch patterns, some deceleration is anticipated in subsequent quarters.