Microsoft’s Xbox business is still shrinking, but the pace of that decline has slowed considerably, as reported yesterday. In the company’s fiscal first quarter ended September 30, Xbox revenue fell 2% year over year to $5.38 billion, an improvement from the 10% decline reported in the previous quarter. Xbox content and services revenue also fell 2%, while hardware revenue dropped 14%.
In a tweet, Xbox CEO Asha Sharma framed the results as evidence of progress, claiming that the division’s measly accountability margin had already improved while highlighting record-setting performances from games like Mojang’s Minecraft and Blizzard’s World of Warcraft Forever, Call of Duty Modern Warfare 4’s most acclaimed release in more than a decade, and double-digit growth in PC platform revenue. She had also previously celebrated the Call of Duty franchise surpassing $40 billion in lifetime revenue.
The Numbers Behind the Message
In the quarterly report, Microsoft said the 2% decline in content and services revenue was driven by lower third-party game sales and Game Pass revenue, only partially offset by stronger first-party content sales. The company once again did not disclose an updated Game Pass subscriber figure; its last publicly reported total was 34 million, more than two years ago.
Hardware sales remain the division’s obvious weakness. Xbox hardware revenue fell 14% year over year, yet Sharma insisted that console sales are being constrained by supply rather than demand, and the division is working hard to improve the supply situation:
Console sales remain constrained by supply, with more demand than consoles available. We’re working to get more consoles into players’ hands, including through our expanded refurbishment program.
Microsoft also guided toward a difficult next quarter for hardware, with Xbox hardware revenue expected to decline again. Content and services revenue, however, is expected to grow in the mid to high single digits.
Sharma’s Turnaround Is Still Very Much Underway
The results arrive at a sensitive moment for Sharma, who became CEO of Microsoft Gaming in February (replacing long-time CEO Phil Spencer, who retired) and quickly made sweeping changes, including the division’s rebrand back to XBOX. Her mandate from Microsoft CEO Satya Nadella has been to return the business to player and revenue growth by the end of fiscal 2027, while improving margins and scaling what works.
That turnaround has involved substantial structural change. Under the big reset announced in July, Xbox is expected to cut up to 3,200 roles before the end of the current fiscal year, with nearly 1,900 positions already eliminated as part of the studio closures/divestments and layoffs we’ve reported at length.
The most visible recent shake-up came last week, when Helen Chiang left the newly created role of Xbox Chief Operating Officer (COO) after only three months. Chiang was supposed to control end-to-end profit-and-loss responsibility across content, hardware, platform, and services, and for holding the division accountable for results; her duties are now being shared among other Xbox leaders while longer-term plans are finalized.
Progress, Albeit With Caveats
Sharma’s tweet is very carefully worded: it emphasizes a smaller revenue decline, margin improvement, franchise records, and growth on the PC platform, while acknowledging that much more work remains. That is an accurate summary of the quarter, but it does not change the fact that Xbox revenue and hardware sales are still down year over year.
The positive signals are real, though: first-party content is growing (albeit likely not to the extent they would want, especially for certain franchises like Gears), PC is performing strongly, and the content-and-services decline has narrowed sharply. But Xbox’s recovery now depends on whether Sharma can convert those gains into sustained overall growth while managing ongoing restructuring, leadership churn, and a hardware supply problem that is limiting the already meager console sales.
About the author: With over two decades of experience in gaming journalism, Alessio Palumbo has led the gaming vertical at Wccftech since August 2015. He started working at a young age for Italian websites like Everyeye.it, Gamestar.it, Nextgame.it, and Multiplayer.it before kickstarting the indie English-language publication Worlds Factory as its founder and Editor in Chief.
In the last decade, he has coordinated the overall output of Wccftech’s gaming section, managed PR relations, assigned reviews, produced daily news coverage, edited gaming content as needed, and delivered game reviews.
Arguably, his trademark content is the long series of exclusive developer interviews that have been cited by Wikipedia and by the biggest news media and gaming publications.
His passion for technology also makes him knowledgeable when it comes to gaming hardware and tech. His favorite genres include RPGs, MMORPGs, and action/adventure games.
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