Xbox Hardware Revenue Has Been Dropping for Two Years Straight

Xbox has been having a hard time selling consoles lately, and it didn’t get any better over the 2025 holiday quarter. Microsoft has just reported its Q2 2026 earnings, including the news that hardware sales were down 32% year-over-year, after quarter upon quarter upon quarter of hardware declines.

Though we don’t have actual numbers to tell how much revenue is being lost out on here, we can get a sense of how grim this is for the hardware by looking at past quarters. Last quarter, Q1 of 2026, hardware declined 29% year-over-year. The quarter before that, Q4 of 2025, hardware was down 22%. The quarter before that? Down 6%. Before that? Down 29%. And before that, 29%, in Q1 of 2025, which was July – September of 2024. Going back even further through Microsoft’s earnings reports, the prior year quarters saw declines of 42% (woah) in Q4 of 2024 and 31% in Q3. In fact, you have to go all the way back to Q2 2024, which was October through December of 2023, to find the last time Xbox’s hardware revenue was better during that period than it was the year before – it was up a whopping 3% over the holiday quarter.

And yes, it was down 7% the quarter before that, 13% before that, down 30% before that, down 13% before that, and finally up 13% year-over-year in Q1 of 2023, or July – September of 2022, at which point the numbers start finally showing consistent improvement year-over-year, largely due to proximity to the launch of the Series S and X.

Now, look. It’s extremely normal for a six-year-old console to not be selling as well as it was in the first few years after launch. That’s to be expected. Early adopters tend to buy up consoles in large quantities at launch, distributers run out of stock, more is produced, people continue to buy until the vast majority of enthusiasts who want the console already have one, and then sales slow down as the console gets older. But it…usually takes a bit longer to get to that point! For comparison’s sake, we have evidence that neither the PlayStation 5 nor the Nintendo Switch have had this much trouble on this scale selling systems at this stage in their respective life cycles, and certainly not as far back as less than three years after launch. There’s maybe a reason why we have hard unit sales numbers of Switches and PS5s from Nintendo and PlayStation, but no official numbers whatsoever from Xbox on the Series S and X.

None of this is surprising to anyone who’s paying attention. We’ve been reading headlines about the strugglines of the Xbox Series consoles for the last several years now. In the U.S., Xbox console sales hit an all-time November low in 2025, after several years in a row of declining hardware sales in what is usually the busiest retail month with Black Friday.

These more recent struggles are likely tied as well to the two spikes in Xbox console prices just this year, which saw the least expensive Xbox rise to $400, and the most expensive to an unimaginable $800. Its recently-released ROG Ally launched last year at a whopping $1000. And because much of the high prices are tariff-related, the U.S. – Xbox’s biggest market – is primarily impacted here. According to Circana analyst Mat Piscatella speaking to us last December, the average price per Xbox unit in the U.S. has risen 30% year-over-year in 2025.

Xbox seems to be well-aware that its console business is seriously suffering. While it’s promised a new, next-gen console to follow the Series, it’s also said such a console would be a “very premium, very high-end curated experience.” And even though there have been rumors it’s considering backing off about its hardware plans recently, Xbox is still denying them, even as a former Xbox founding member says that “Xbox hardware is dead.”

While the hardware declines were the most noteworthy figure from Microsoft’s earnings yesterday, it’s not like software was doing a whole lot better. Content and services revenue dropped 5% year-over-year, and overall gaming declines caused revenue in the More Personal Computing segment of Microsoft to drop 3% year-over-year. In the investor presentation, CFO Amy Hood said that the revenue drop was “driven by first-party content with impact across the platform,” suggesting that its first-party games (perhaps Call of Duty?) didn’t do as well as they expected them to.