Xbox revenue drops 10%, hardware sales fall 14%

Xbox revenue fell 10 percent in the fourth quarter, Microsoft reported on July 29, 2026. Hardware sales dropped 14 percent over the same period.

The decline affects Microsoft’s gaming division, which includes Game Pass subscriptions and other services. Xbox head Asha Sharma recently announced a “reset” plan that involves sweeping layoffs and the sale of four game studios. The company also plans to raise console prices by $100 or more starting August 1st.

The weak gaming results contrast with strong growth in Microsoft’s cloud and AI businesses. Cloud revenue surged 27 percent to $59.3 billion, while productivity revenue, which covers Microsoft 365 and LinkedIn, rose 14 percent to $37.8 billion.

Microsoft’s Windows OEM and devices segment also declined, falling 7 percent due to lower PC market demand. The earnings report highlights a shift in the company’s performance, with AI and cloud services driving growth while traditional hardware and gaming segments struggle.

The Xbox reset and price increases are part of efforts to stabilize the gaming business. The layoffs and studio sales aim to streamline operations, but the near-term impact on revenue remains uncertain. Microsoft’s broader strategy continues to emphasize AI and cloud expansion.