Xbox revenue from content and services fell 10% in the quarter ending June 30, 2026, while hardware revenue declined between 13% and 14% during the same period [1, 2, 3, 4, 5]. For the full fiscal year 2026, Xbox revenue dropped approximately $1.7 billion, or 7%, year-over-year, driven by a 29% fall in hardware revenue [4, 5].
Microsoft announced about 3,200 layoffs across the Xbox division in August 2026, with 1,600 job cuts immediate and further reductions planned in fiscal 2027 [1, 5]. Four Xbox game studios were either offloaded or spun off as independent entities, including the well-known Double Fine studio [1, 3, 5].
Xbox CEO Asha Sharma recognized the challenge of growing the business alongside a rising player base. She noted, “In FY26, over 200 million new players came to Xbox and our games, but our business did not grow with our audience. We need to close that gap by investing in what players value. That will take time, but we expect to return to growth by the end of FY27” [2, 6]. On July 29, Sharma tweeted about the need to invest in player priorities and commit to returning Xbox to growth by fiscal year 2027 [6].
Microsoft CEO Satya Nadella said the company is making “the necessary decisions required across our content portfolio, platform, and operations to reset the business for long-term growth.” He added, “We have the best IP in the industry and talented studios around the world, and believe we can bring these strengths together, and expect to return the business to growth in fiscal 2027” [1, 6, 5].
There are reports that Xbox is developing a next-generation console, code-named Project Helix, which may omit a disc drive as it explores digitizing physical media to link disc-owned games to user accounts [2].
Outside Xbox, Microsoft’s overall cloud business grew 27% year-over-year to $59.3 billion in Q4 2026, supported by strong adoption of AI and Microsoft 365 products [1, 3, 5].
The layoffs and studio restructurings mark a significant reset for Xbox amid declining revenues. The company aims to return to growth by the end of fiscal 2027.
