[OPINION] Xbox Hardware Slips as Microsoft’s Earnings Expose a Growing Problem

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Microsoft’s fiscal year 2026 second quarter earnings, released on January 28, 2026, showed a company in strong shape overall, but they also highlighted serious trouble for Xbox. While Microsoft celebrated major gains across its core businesses, its gaming division once again fell behind, raising new questions about the future of Xbox hardware.

The company reported $81.3 billion in revenue for the quarter, a 17 percent increase compared to last year. This growth was driven mainly by Azure cloud services and Office products, which continue to expand at a fast pace. In contrast, the More Personal Computing segment, which includes Xbox, moved in the opposite direction. Revenue in this segment dropped to $14.25 billion, down from $14.65 billion a year earlier, with gaming named as a key reason for the decline.

A closer look at the numbers makes the situation worse. Xbox gaming revenue fell 9 percent year over year. Hardware sales collapsed by 32 percent, while content and services dropped by 5 percent. This was not just a weak quarter, but another sign of a long-term problem.

The sharp fall in hardware sales is especially troubling. The Xbox Series X and Series S are now deep into their life cycle, but Microsoft has done little to refresh interest in them. There is no strong push in marketing, no major hardware update, and no clear message about what comes next. For many players, there is simply no reason to buy an Xbox console today.

That problem is made worse by Microsoft’s choice to release its biggest games on other platforms. Titles like Indiana Jones and the Great Circle and Avowed are launching on PlayStation 5 and PC at the same time as Xbox. Older pillars of the brand, such as Halo and Gears of War, are also moving beyond the console. This removes the main reason people once bought Xbox hardware in the first place.

Xbox leadership has openly supported this platform-agnostic approach, saying the goal is to reach players everywhere. While that may make sense for software sales, it leaves Xbox consoles without a clear role. The earnings report offered no hint of new hardware or a next-generation system, adding to concerns that consoles are no longer a priority.

Microsoft’s focus has shifted heavily toward Game Pass and cloud gaming. In theory, this offers steady income without relying on hardware sales. In practice, the plan is starting to crack. Content and services revenue still declined, even with Game Pass at the center of the strategy.

The timing is hard to ignore. In October 2025, Microsoft raised the price of Game Pass Ultimate from $19.99 to $29.99 per month. New and confusing tiers were also added. This happened right at the start of the quarter and was followed by a clear drop in revenue. Many users complained online about cancellations and said the service no longer felt worth the cost.

At the same time, Xbox has struggled to deliver strong, polished games. Recent releases like The Outer Worlds 2 and Avowed failed to meet expectations, launching with mixed reactions. These games did little to justify higher prices or keep players locked into the Xbox ecosystem.

All of this stands in sharp contrast to Microsoft’s wider success. Net income jumped 60 percent to $38.5 billion, and cloud services alone brought in more than $40 billion. Gaming, with about $6 billion in quarterly revenue, looks small next to these giants and appears to be treated as less important. One of the most worrying signs is what Microsoft did not say. The company did not share updated Game Pass subscriber numbers, something it often highlighted in the past. That silence suggests growth may have slowed or even reversed.

Without new hardware plans, strong exclusives, or fair pricing, Xbox consoles are losing their purpose. Players can already access most Xbox games on PlayStation, PC, or through cloud streaming. In that world, buying a $500 console makes little sense.

Microsoft’s multi-platform strategy may help spread its games further, but it is failing to protect Xbox hardware. Unless the company changes direction and invests properly in consoles again, Xbox risks becoming a side brand rather than a pillar of gaming.