Xbox Hardware Sales Continue to Slide as Microsoft Reports Another Rough Quarter: Xbox’s struggle to sell consoles shows no sign of easing, and the 2025 holiday quarter did little to change the narrative. Microsoft’s newly released Q2 2026 earnings paint a familiar picture for the gaming division’s hardware business: another sharp year-over-year decline, and another reminder that Xbox consoles remain under significant pressure in the market.
According to Microsoft’s report, Xbox hardware revenue fell 32% year-over-year during the quarter. That figure alone is stark, but it becomes even more troubling when viewed in context. This isn’t an isolated dip tied to a weak holiday season or a temporary supply issue—it’s the continuation of a long-running downward trend that has now stretched across multiple years.
While Microsoft does not disclose unit sales or exact revenue figures for Xbox hardware, the percentage declines across recent quarters offer a clear sense of direction. The trajectory has been consistently negative, and in many cases, steeply so.
Just one quarter earlier, in Q1 of fiscal year 2026, Xbox hardware revenue declined 29% year-over-year. Before that, Q4 of 2025 saw a 22% drop. Go back another quarter and the decline was smaller—6%—but still negative. Prior to that, hardware revenue fell 29% again. And in Q1 of 2025, which covered July through September of 2024, Xbox hardware was also down 29%.
The pattern doesn’t improve when looking further back. In Q4 of 2024, hardware revenue plunged by a massive 42%, followed by a 31% decline in Q3 of that same fiscal year. These aren’t mild corrections or temporary pullbacks—they’re deep, sustained contractions that suggest structural challenges rather than cyclical ones.
To find the last time Xbox hardware actually grew year-over-year, you have to rewind all the way to Q2 of 2024, covering the October–December 2023 holiday quarter. Even then, the increase was modest: just 3% growth compared to the prior year. Since that point, every subsequent quarter has moved in the opposite direction.
The latest 32% drop during the 2025 holiday quarter is especially notable because this period is traditionally the strongest time of year for console sales. Holiday promotions, bundled games, and gift purchases usually provide a meaningful boost to hardware revenue. Instead, Xbox hardware declined at one of its steepest rates yet, suggesting that even seasonal demand is no longer enough to offset broader market headwinds.
Several factors likely contribute to this sustained downturn. The Xbox Series X and Series S consoles are now well into their lifecycle, and there has been no mid-generation refresh to reignite interest. At the same time, Microsoft’s broader gaming strategy has increasingly deemphasized console exclusivity, focusing instead on Xbox Game Pass, cloud gaming, and publishing games across multiple platforms—including PC and rival consoles.
That strategy may be working for Xbox as a brand and service, but it arguably reduces the urgency to buy Xbox hardware specifically. If major first-party titles are no longer tied exclusively to Xbox consoles, consumers have fewer reasons to invest in the hardware itself.
There’s also the reality of a maturing console market. Many players who wanted an Xbox Series console already own one, and rising hardware prices globally have made new purchases harder to justify. Meanwhile, competition from other platforms, handheld PCs, and alternative gaming ecosystems continues to fragment player attention.
Microsoft has been clear that its definition of “Xbox” now extends far beyond a single box under the TV. Engagement, subscriptions, and software revenue increasingly take priority over hardware sales. From that perspective, declining console revenue may be seen internally as a tradeoff rather than a crisis.
Still, the numbers are hard to ignore. A 32% year-over-year drop during the most important sales quarter of the year underscores just how challenging the hardware side of Xbox’s business has become. Without a new console announcement, a major hardware revision, or a shift in strategy that once again makes Xbox consoles feel essential, it’s difficult to see what reverses this trend in the near term.
For now, Microsoft’s earnings confirm what the charts have been showing for some time: Xbox hardware is in a prolonged slump, and the holiday season was unable to offer even a temporary reprieve.
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