Microsoft reported a 33% decline in Xbox hardware revenue in its earnings report released Wednesday, as the company’s gaming business remained under pressure.
Despite weaker results in consumer-focused segments, Microsoft said total revenue reached $82.9 billion, supported by continued strength in cloud, productivity, and artificial intelligence businesses.
Xbox Revenue Declines
Alongside the hardware drop, Microsoft also reported a 5% decline in Xbox content and services revenue.
The results come after several recent leadership changes inside the gaming business, including the retirement of former Xbox chief Phil Spencer and the departure of former Xbox president Sarah Bond. Former Microsoft CoreAI executive Asha Sharma is now leading the gaming division.
Microsoft said Sharma has already lowered the price of Xbox Game Pass and started efforts to rebuild the Xbox brand.
CEO Wants to Earn Fans Back
Microsoft chief executive Satya Nadella said during the earnings call that the company is working to win back fans across its brands, including Xbox.
He said the team is recommitting to core players and shaping the future of gaming.
Nadella added that recent Game Pass changes were an example of responding to customer feedback.
Windows Improvements Continue
Nadella also pointed to updates in Windows, saying the company improved performance for lower-memory devices, streamlined Windows Update, and renewed focus on core features.
Microsoft recently introduced the option for users to pause Windows Updates indefinitely and removed certain Copilot buttons from Windows 11 apps.
Cloud And AI Drive Growth
Microsoft reported $54.5 billion in revenue from its cloud business, up 29% from a year earlier. The company said its AI business exceeded an annual revenue run rate of $37 billion, up 123% year over year. Revenue from Microsoft Azure and related cloud services increased 40%.
Microsoft 365 Gains
Microsoft 365 Copilot also posted growth, with paid seats rising from 15 million in the previous quarter to 20 million.
Microsoft said consumer cloud revenue for Microsoft 365 increased 33%, while the commercial segment rose 19%.
The company has also added new AI features across Microsoft Word, Microsoft Excel, and Microsoft PowerPoint.
Devices Business Slips
Revenue from Microsoft’s Windows OEM and devices business fell 2%. The company said the segment has been affected by a global memory shortage that led to higher pricing for Microsoft Surface devices.
Microsoft expects upcoming launches of new Surface Pro and Surface Laptop models in the coming months could help improve performance.
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