Xbox hardware revenue tumbled by 32 percent in Q2
Gaming revenue decreased by 9 percent year-on-year at Microsoft during the second quarter ended December 31, 2025. That decline was once again due to waning Xbox hardware and Xbox content and services revenue.
Digging deeper, the U.S. tech giant said Xbox hardware revenue decreased by 32 percent year-on-year "driven by lower volume of consoles sold."
Xbox content and services revenue decreased by 5 percent, although Microsoft suggested the bumper performance of first-party content during the prior year was partly responsible for that dip.
In terms of highlights, Microsoft CEO Satya Nadella explained the company delivered a record number of PC players and paid streaming hours on Xbox during Q2.
He also stressed that Microsoft remains committed to "delivering great games across Xbox, PC, cloud, and every other device."
Even so, Microsoft expects Xbox content and services revenue to decline once again in Q3, but predicted that continued downturn will be "partially offset by growth in Xbox Game Pass." Hardware revenue is also expected to decline yet again in Q3.
Can Xbox find its footing after year of turbulence?It's a story we've heard before, with Microsoft reporting similar declines within its More Personal Computing division—which houses its video game business—in recent quarters.
That turbulence comes with Microsoft attempting to turn every entertainment device under the sun into an Xbox, with the company bringing game streaming to a range of Smart TVs, debuting an official Xbox handheld in tandem with Asus, and even launching an Xbox branded Meta Quest headset.
It also, however, follows price hikes for Xbox Game Pass and console hardware in 2025 and widespread layoffs within Xbox Game Studios.
Those job cuts, the fourth major round of redundancies made by Microsoft since its $68.7 billion merger with Activision Blizzard, resulted in multiple game cancellations, the dissolution of publishing partnerships, and studio closures.
When announcing the news in July 2025, Xbox boss Phil Spencer said the move would position the company's video game division for "enduring success" while allowing it to focus on "strategic growth areas."
