Xbox Console Sales Plummet by a Third Amid Game Revenue Decline
Microsoft's Xbox brand is experiencing a turbulent start to its 25th anniversary year, with hardware sales declining sharply and first-party game performance falling below expectations. New financial data reveals a concerning trend for the gaming division, casting a shadow over what should be a celebratory period for the iconic platform.
Financial Results Paint a Bleak Picture
Microsoft's second-quarter fiscal 2026 results, covering October to December 2025, show overall company revenue increased by 15% to $81.3 billion (£59 billion). However, the gaming division tells a different story, with revenue declining by 9%. This follows a pattern of decreasing gaming revenue, as last year's $6.6 billion quarter was already lower than the previous year's performance.
Chief Financial Officer Amy Hood acknowledged the disappointing results, stating that the gaming division's performance was 'below expectations driven by first party content with impact across the platform.' This admission highlights how Microsoft's own game studios have failed to deliver the commercial success needed to support the broader Xbox ecosystem.
First-Party Games Underwhelm During Critical Quarter
The holiday quarter saw several high-profile releases that failed to meet sales expectations:
- Double Fine's Keeper - An Xbox Series X/S and PC exclusive that didn't generate anticipated interest
- Ninja Gaiden 4 - Published by Xbox Game Studios but developed by third-party studios Team Ninja and PlatinumGames
- The Outer Worlds 2 - Microsoft's major Christmas release that received a multiplatform launch
- Call Of Duty: Black Ops 7 - Known to have underperformed, with Battlefield outselling the franchise for the first time
Hood further warned that the situation isn't expected to improve in the third quarter (January to March 2026), predicting 'revenue to decline in the mid-single digits against a prior year comparable that benefitted from strong content performance.' The only offset comes from continued growth in Xbox Game Pass subscriptions.
Hardware Sales Continue Their Downward Spiral
Xbox hardware revenue declined by a substantial 32%, a figure that might have been even worse without recent price increases. This continues a multi-year trend of decreasing console sales, raising questions about Microsoft's long-term hardware strategy.
The situation appears particularly concerning in European markets, where Xbox consoles have been out of stock for months on Microsoft's official websites in countries like Spain and Italy. The Netherlands website doesn't even feature a console section. While UK and US retailers still stock the consoles, Microsoft had to publicly deny rumours that major US retailers like Target and Walmart were planning to remove Xbox consoles from sale.
Future Challenges and Competitive Pressures
With no major first-party games scheduled for the current quarter beyond the PlayStation 5 port of Avowed and the full release of Towerborne, pressure mounts on upcoming titles like Forza Horizon 6, the Fable reboot, and the Halo: Combat Evolved remake. The latter's planned PlayStation 5 release exemplifies Microsoft's shifting strategy toward multiplatform publishing.
Looking further ahead, Microsoft's next-generation console plans face additional challenges. The rumoured PC-like Xbox console, likely to carry a premium price tag, may face direct competition from Valve's revamped Steam Machine, which is expected to launch this year. Meanwhile, Microsoft's next Xbox might not arrive until later in the decade.
As Xbox approaches its 25th anniversary in November 2026, Microsoft faces significant questions about the brand's future direction. The combination of declining hardware sales, underperforming first-party games, and increasing competitive pressures creates a challenging environment that will require strategic adjustments to reverse current trends.
