Xbox After the Reset: Hardware Remains in Decline

TVS News AI, editorially supervised, presents Xbox After the Reset: Hardware Remains in Decline.

Microsoft published the results for July, August and September on October 28, 2026. It was the first nearly complete quarter since Xbox chief Asha Sharma announced the “most significant restructuring in Xbox’s history.” Only a few days were missing before the report.

The evaluation therefore begins precisely when the restructuring should start to show results. The outcome is more nuanced than a simple “hardware down,” but it primarily provides a clear picture: Xbox’s biggest area of growth, hardware, remains under pressure.

July to September: The First Full Quarterly Look After the Restructuring

The starting point

Microsoft cut more than 1,600 jobs as part of the reset. The number is expected to rise to 3,200 by July next year. At the same time, Xbox is separating from several Microsoft-owned studios. After a single quarter, it is not yet possible to reliably determine how strongly these measures will affect the business’s trajectory.

There is, however, an initial indication: The job cuts apparently were not among the numerous metrics Microsoft specifically highlighted. The figures most relevant to investors show that the reset has not yet visibly reversed the previous hardware trend.

Hardware Revenue Falls 14 Percent

The key metric

Microsoft’s hardware revenue fell 14 percent during the quarter compared with the previous year. The decline is not a new outlier. In the previous quarter, it was 13 percent, and before that, it was as high as 33 percent. Hardware is therefore continuing its longer-term downward trend.

Kotaku consequently summarizes the report card in two concise sentences: The first report after the reset looks “a lot like all the others.”

Hardware down

This is the most robust conclusion from the interim results. The revenue figures do not show that any particular console model was especially weak or strong. What is certain is: Devices and Consumer operating performance remained distinctly negative during the quarter under review.

Operating Expenses Fall — but Microsoft Is Reinvesting

Where the reset is affecting finances

For the first time, there is a sign that the savings could be taking effect. Operating expenses for the Devices and Consumer division fell 3 percent. Microsoft explicitly attributes this decline to Xbox. That fits with the job cuts and indicates that Sharma’s layoffs are reducing some costs.

The catch is that Microsoft is largely offsetting these savings through further investment in computing capacity and research and development talent. The motivation behind the job cuts therefore does not automatically change the division’s overall spending trajectory.

A second cost effect lies in the details of the balance sheet. The division’s cost of revenue fell 8 percent because Microsoft amortized intangible assets from the Activision acquisition to a lesser extent. According to Kotaku’s interpretation, these include brands and patents. The decline therefore does not automatically mean that Xbox is spending substantially less operationally.

Game Pass Falls 2 Percent Despite Its Lower Price

The counterweight to hardware

Revenue from Xbox content and services fell 2 percent. Microsoft attributes the decline to weaker revenue from third-party content and Xbox Game Pass. A price cut had already taken effect in April for Game Pass. After the first quarter at the lower price, the decline in revenue had still not been reversed.

The two central product lines are therefore performing differently: Game Pass is cheaper, but has not yet generated higher revenue. For hardware, the situation is exactly the reverse: The consoles remain expensive, and demand remains weak. Kotaku describes this relationship as the quarter’s central finding.

11 Million PlayStation Sales Barely Move Xbox

Why the releases did not carry the quarter

During the quarter under review, Xbox released a Halo remake as well as the PlayStation ports of Black Ops 1 and Black Ops 2. Although the two Black Ops titles sold 11 million times on PlayStation, they had no visible effect on Xbox’s overall figures.

This supports Kotaku’s sober assessment: Neither additional staff nor a reorganized company automatically changes market conditions. The 1,600-job cost-cutting program alone also does not fill a console gap.

What the First Report Card Proves — and What Remains Open

The clear finding

The Xbox reset did not prevent a 14 percent decline in hardware revenue in the first complete quarter. Game Pass also recorded 2 percent less revenue in content and services despite the price cut. Kotaku therefore sees a report card that resembles the previous ones.

The strongest counterargument is the 3 percent decline in operating expenses. This could show that the restructuring is permanently improving the cost level. Whether that remains the case, and how stronger game releases affect the figures, cannot yet be determined reliably after this single quarter.

For you, this means: View the report as an initial interim result, not a verdict on the entire reset. The persistent weakness in hardware, the decline in Game Pass and potential savings from job cuts have all been firmly documented. You can find the linked Kotaku report, including all the details, here.