Microsoft appears to have a major hardware problem, apart from their Azure cloud platform crashing, the business is struggling to grow sales of their Xbox consoles and Surface devices.

While there is growth in gaming software and content which is primarily sold direct, Microsoft has reported that Xbox console sales fell 42% compared to the same period last year. The business that has taken to not revealing precise numbers as it appears they may be embarrassing.

Surface device revenue has fallen 11%.

Microsoft CEO Satya Nadella highlighted in the earnings call that Xbox’s expansion to other platforms like Amazon TV is a part of the strategy to “expand from there so that we have content for everywhere people play games, starting with the PC.”

Xbox also profited from the Fallout show on Amazon Prime, which it said was the “second-most-watched title” on the service ever. This led to an increase in people playing the Fallout franchise on Game Pass. Nadella said that there are now 500 million active monthly users across the company’s platform and services.

Console sales are generally down across the board. According to Circana analyst Mat Piscatella, hardware and accessory spending fell 6% in May 2024 year over year, although overall spending in 2024 was slightly up.

He added that Switch sales in May 2023 were boosted by The Legend of Zelda: Tears of the Kingdom, so that skews the numbers slightly.

We’re also in the middle of the life cycle for the Xbox Series X and S. The consoles came out at the tail end of 2020, and previously, Xbox has released a mid-gen refresh. Last generation, which was the Xbox One S and Xbox One X; the former was a smaller version of the Xbox One, while the latter was an upgrade in terms of performance.

Windows OEM revenue was up 4 percent year over year.

Gartner said earlier this month that PC shipments have grown for three consecutive quarters, and that’s reflected in Microsoft’s Windows OEM growing in the same three quarters.
Recently the business launched a new range of Copilot Plus PCs toward the end of fiscal Q4, with a variety of Qualcomm-powered devices available from mid-June.

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The full impact of sales on devices revenue won’t be felt until next quarter, according to analysts.

Surface revenue, or what Microsoft now calls devices revenue, has declined again this quarter by 11 percent.

The last time Microsoft’s Surface revenue was up in Q1 FY23, the quarter ended September 30th, 2022.

Microsoft CFO Amy Hood says the company’s devices revenue will continue to decline next quarter, in low to mid-single digits. Windows OEM revenue should be relatively flat next quarter “in line with the PC market,” according to Hood.