The decline in Xbox hardware revenue has become so predictable you could set your Starfield watch to it. Microsoft reported its second-quarter earnings on Wednesday and, yes, console sales are down yet again. But the rest of the gaming division didn’t have a such a hot holiday either. The company is blaming year-over-year declines on the lack of strong releases near the end of 2025. Hmmm.
“Xbox content and services revenue declined 5 percent (down 6 percent CC) on a prior year comparable that benefited from strong first-party content performance,” reads the company’s latest earnings presentation. “Xbox hardware revenue declined 32 percent.”
But last year’s numbers weren’t exactly stellar. The gaming division saw a 7 percent decline overall in the second quarter. Xbox hardware was down 29 percent this time in 2025, while content and services were only up 2 percent. Holiday 2024 had Indiana Jones and the Great Circle and Microsoft Flight Simulator 2024 but was otherwise quiet.
Holiday 2025, on the other hand, saw the release of Ninja Gaiden 4 and The Outer Worlds 2, while Flight Sim came to PS5. Also the underperforming Call of Duty: Black Ops 7 which, combined with a major Game Pass price hike, might have led to a spike in churn. We don’t know, though, because Microsoft still isn’t releasing new subscriber numbers.
All we know for sure is that the Xbox Series X/S is an ever-shrinking part of the equation for Microsoft Gaming and the company in general. And it’s been that way almost every year since the consoles launched. The company has promised new hardware but the priorities of the evolving Xbox platform seem to increasingly lie beyond it.
With the AI arms race led by Microsoft and others spiking gaming hardware costs in the near term, maybe that’s for the best.