Microsoft reported a 10 percent drop in Xbox content and services revenue — including its Game Pass subscription — alongside a 13 percent decline in Xbox hardware sales, according to the company’s fourth-quarter earnings report released on July 29, 2026.
The results arrive weeks after Xbox head Asha Sharma announced a “reset” plan for the division that included widespread layoffs and the spinoff of four game studios, among them South of Midnight developer Compulsion Games and Psychonauts creator Double Fine Productions.
During an earnings call, Microsoft CEO Satya Nadella addressed the struggles directly. “When it comes to Xbox, we are making the necessary decisions required across our content portfolio, platform, and operations to reset the business for long-term growth,” he said, adding that Microsoft expects “to return the business to growth in fiscal 2027.”
While Xbox weighed on results, Microsoft’s broader business posted strong gains driven by cloud and AI. Microsoft Cloud revenue rose 27 percent to $59.3 billion, pushing the company’s total revenue to $90 billion. The productivity segment — which includes Microsoft 365 and LinkedIn — grew 14 percent to $37.8 billion. Microsoft 365 Copilot surpassed 30 million paid seats, and Azure revenue exceeded $100 billion for the first time.
Xbox was not the only segment to decline. Microsoft’s Windows OEM and devices division fell 7 percent, which the company attributed to lower PC market demand. Microsoft introduced a new Surface device featuring Nvidia’s Arm-based RTX Spark processor in June 2026 and has begun making changes to Windows 11 as it works to rebuild user trust.
The contrast between Xbox’s declining numbers and Microsoft’s surging cloud and AI performance suggests the company’s near-term growth may increasingly depend on its enterprise and AI offerings rather than its gaming division.
Source: The Verge