In its latest earnings report for Q2 of FY 2026, Microsoft has revealed that its Xbox gaming divisions saw a decline in revenues. The total gaming segment shrank by 9 percent, while content and services—which would include Xbox Game Pass—saw a 5 percent decline. Hardware was the hardest segment hit, with a 32 percent decrease likely owing to lagging console sales.
Overall, Microsoft has attributed Xbox with contributing to a 3 percent decline in overall revenue that was offset by its other services, like Search, news advertising, and Windows OEM. The latter, the company noted, contributed to a 1 percent growth in Windows OEM and Devices, benefiting from the end-of-life for Windows 10.
The vast majority of revenue reported by Microsoft for the quarter has come from its productivity and business software and services suites. This includes things like its Microsoft 365 suite of applications and cloud offerings. Overall, revenue from the segment rose by 17 percent.
Decline of hardware sales revenues should come as no surprise, since Xbox Series X/S has been struggling quite a bit over the last few months. According to a report from back in December, sales of the consoles hit an all-time low in the US. Compared to November 2024, November 2025 saw Xbox Series X/S console sales fall by 70 percent.
While there might be many reasons for this, Circana analyst Mat Piscatella has attributed the declining sales to just how expensive Xbox consoles have gotten these days. Microsoft had raised the prices of its current-gen consoles back in September, with the Xbox Series X now priced at $599.99, and the 1 TB variant of the Xbox Series S costing $429.99.
Those looking forward to buying one of Microsoft’s consoles might also see some trouble on the horizon. A report from November has indicated that Microsoft will announce yet another price hike for Xbox owing to worldwide shortages in memory. According to YouTuber Moore’s Law is Dead, this third price hike is expected to happen because of a lack of planning on Microsoft’s part for this RAM shortage.
“They didn’t plan ahead at all, apparently,” he said. “If you still want an Xbox for some reason at their current pricing, those prices could go up soon, or supply could entirely dry up because multiple sources of mine have apparently been warned by sales reps at Microsoft that this is going to affect the Xbox Series consoles very, very soon. Sooner rather than later.”
Looking to the future, reports have been coming in that the next-generation consoles by both Microsoft and Sony might get delayed past 2027 thanks to the memory shortage. Xbox president Sarah Bond, however, had also previously indicated that the company’s next console will be a “very premium, very high-end curated experience,” which likely means that it will be on the more expensive side.
Microsoft has also been focusing quite a bit more on the software side of things when it comes to gaming, having relatively recently teamed up with Asus to launch the ROG Xbox Ally and Xbox Ally X handheld systems, along with the new Full Screen Experience that aims to make Windows 11 a more intuitive system to control without a mouse or keyboard.
