Microsoft has reported a sharp decline in Xbox console revenue for the quarter ending 30 September, with figures showing a 30% drop compared to the same period last year. The decrease comes ahead of the company’s recent price hikes for its gaming hardware and subscription services, which were implemented after the reporting period.
Xbox hardware sales slump ahead of price hikes
According to Microsoft’s latest earnings report, the 30% decline in Xbox hardware revenue does not include the impact of recent price adjustments. The company increased the price of its Xbox consoles by between US$20 and US$70 on 3 October, while the cost of its Game Pass Ultimate subscription rose from US$20 to US$30 during the same month.
Despite the drop in console sales, revenue from Xbox content and services remained relatively stable compared with last year. Microsoft stated that growth in Xbox subscriptions and third-party content was “partially offset” by weaker performance in first-party titles, which have historically been a key driver of its gaming division.
Impact of workforce cuts and game cancellations
Earlier this year, Microsoft made significant job cuts across its global workforce, with the Xbox division among the most affected. These layoffs led to the cancellation of several in-development projects, including the planned modern reimagining of Perfect Dark, a classic first-person shooter first released in 2000. The studio responsible for the reboot was also shut down as part of the restructuring.
Another major project, Everwild, which had been in development for several years by the Xbox studio Rare, was also cancelled during the layoffs. The cuts have raised questions about Microsoft’s long-term strategy for its gaming division, particularly as competition in the console market intensifies and the company shifts its focus toward cloud and subscription-based gaming services.
Microsoft’s overall growth is driven by AI and cloud investments
While Xbox revenue declined, Microsoft’s overall performance remained strong. The company reported total revenue of US$77.7 billion for the quarter, up 17% year over year. Operating income also rose by 22%, primarily driven by strong demand for cloud services and artificial intelligence technologies.
Chief Executive Officer Satya Nadella highlighted Microsoft’s focus on AI expansion in a post on X (formerly Twitter), stating that the company plans to boost its AI capacity by 80% by the end of the year. He also announced plans to double Microsoft’s data centre footprint within the next two years, signalling continued investment in infrastructure to support its growing suite of AI-driven products and services.
1/ Just wrapped our earnings call and wanted to share a few highlights from the quarter.
— Satya Nadella (@satyanadella) October 29, 2025
Bottom line: We’ve got great momentum across our AI platform and our family of Copilots, fueling our increasing investments in both capital and talent.
Despite the challenges facing Xbox, Microsoft’s broader strategy appears firmly anchored in leveraging artificial intelligence and cloud computing as future growth engines. However, the decline in gaming hardware revenue underscores the need for the company to balance its innovation-driven ambitions with maintaining momentum in the competitive gaming market.
