Microsoft Xbox Revenue Dips Amid Hardware Supply Shortages

Microsoft reported a 2% year-on-year decline in Xbox revenue for the fiscal quarter ending September 30, 2026. While this represents an improvement over the 10% decline from the previous quarter, hardware sales dropped by 14%. Asha Sharma, CEO of Xbox, attributed the hardware slump to supply constraints, stating there is "more demand than consoles available." This shortage is linked to a broader industry trend where generative AI companies are hoarding components.

To mitigate these shortages, Microsoft is expanding its refurbishment program and encouraging lapsed users in the United States to trade in unused consoles. These losses were partially offset by double-digit growth in PC platform revenue and record-breaking performance from titles such as Minecraft, World of Warcraft: Forever, and Call of Duty: Modern Warfare 4.

Internally, the company is undergoing a significant restructuring to improve its accountability margin, resulting in a 20% workforce reduction of over 1,800 jobs across the United States, United Kingdom, Canada, and India. This period of volatility also saw the departure of Xbox COO Helen Chiang after only three months in the role.

Despite the financial dip, CEO Satya Nadella emphasized the strength of the upcoming holiday season, noting a powerful lineup that includes the highly anticipated release of Grand Theft Auto 6 next month. CFO Amy Hood expects Xbox content and services revenue to grow in the mid to high-single digits during the second quarter.