Microsoft reports Q2 devices revenue down 39% YoY, Xbox hardware revenue down 13%, Xbox content and services revenue down 12%, and Windows OEM revenue down 39%
Tom Warren / The Verge :
Context & Ripple Effects
Microsoft’s subsequent Q3 report showed the weakness continuing, with Windows OEM revenue still down 28% and devices down 30%. The later pattern was uneven: Windows OEM returned to growth in 2024 while devices remained down, and Xbox content and services grew sharply in the same period.
That makes this report an early indication that Microsoft’s PC-linked and console-hardware businesses were weakening together, rather than a shortfall confined to one product line.
First-order effects
- Microsoft faces lower revenue across its Devices and Windows OEM businesses, while Xbox loses revenue from both hardware sales and content and services.
- Xbox’s 12% content-and-services decline means recurring gaming revenue is not offsetting the hardware slowdown in this quarter.
Second-order effects
- PC makers that license Windows contribute less OEM revenue to Microsoft during the downturn, increasing the importance of a recovery in that channel.
- Microsoft’s later return to Windows OEM growth alongside continued Devices declines separates the PC licensing business from Microsoft’s own-device sales.
Third-order effects
- If the subsequent pattern holds, Microsoft’s hardware exposure becomes less central to its growth mix than Windows licensing and Xbox content and services, whose later gains were much stronger than Devices’ performance.
- The split between device sales and recurring services reinforces the relevance of revenue per active device as a metric for Xbox, rather than hardware revenue alone.
The trend: Microsoft’s results point to a widening divide between volatile hardware revenue and the longer-term value of software, licensing, and gaming services.