Once again, Microsoft has shared its quarterly earnings, and the results highlight a clear shift in priorities. From the glory days of the Xbox 360, one of Microsoft’s most successful consoles, the company has gradually shifted its focus from hardware dominance to a multiplatform services and content approach.
Xbox Hardware Revenue Takes Another Hit
The latest report confirms a continuing decline in Xbox hardware performance. Console sales fell 29% year-over-year in Microsoft’s fiscal first quarter of 2026. This follows a 22% drop in the previous quarter, a trend that reflects waning momentum since 2024.
Part of this slump may be linked to price increases—such as the Xbox Series X now priced at $599.99—and a broader strategic decision to scale back focus on hardware. It’s evident that Phil Spencer’s team faces significant limitations in driving console growth.
Meanwhile, the “Xbox Everywhere” strategy—encompassing Game Pass, digital sales, and third-party partnerships—yielded only 1% growth, while overall gaming revenue declined by 2%. Though this area remains central to Microsoft’s gaming ambitions, the pace of growth has clearly slowed compared to 2024–2025.
Reports also suggest that Microsoft has imposed a profit margin target of around 30% on the Xbox division, prompting cuts and cancellations to prioritise higher-margin products. Hardware, as a result, continues to lose prominence in the company’s broader roadmap.
It’s a stark contrast to the Xbox 360 era, which sold roughly 84 million units and became a cultural icon. Today, Microsoft’s gaming ambitions are less about consoles and more about cloud platforms and subscriptions.
Surface and Windows Show Signs of Life
Turning to devices and Windows, there’s some modest improvement. The Windows OEM and Devices segment grew 6% year-over-year, providing a small lift after several lacklustre quarters. However, Microsoft no longer reports Surface revenue separately, leaving its exact performance unclear—though previous data showed a steady decline.
Azure and the Cloud Continue to Lead
The real star of the quarter remains Azure. The Intelligent Cloud division surged 28% to reach $30.9 billion, with Azure alone growing 40%. The growth clearly comes from data centres and enterprise infrastructure rather than consumer devices.
Overall, Microsoft Cloud revenue hit $49.1 billion, up 26% from the same period last year. The company’s consistent cloud growth underscores how deeply Azure now anchors Microsoft’s business strategy—steady, recurring, and resilient.
Final Snapshot of the Quarter
Microsoft closed the quarter with $77.7 billion in total revenue (up 18%) and $27.7 billion in net profit (up 12%). While the cloud division continues to drive performance, Productivity and Business Processes—home to Office, Teams, and LinkedIn—remains a significant contributor, generating $33 billion.
In short, the message is clear: Microsoft’s strength lies in the cloud, not the console.
