Xbox revenue up 6% as Xbox hardware tops U.S. sales charts

Xbox Series S
Xbox Series S (Image credit: Microsoft)

What you need to know

  • Microsoft announced its FY22 Q3 earnings on Wednesday, with gaming revenue up 6% year-over-year according to the Xbox platform owner.
  • The company attributed the growth to a 14% increase in hardware sales attributed to Xbox Series X and Xbox Series S, while content and services also increased by 4%.

Microsoft has announced its third-quarter earnings for its 2022 fiscal year, coupled with the latest update on its gaming efforts. Year-over-year revenue was up 20% company-wide over the period, totaling $51.7 billion. Xbox revenue also climbed 6% this quarter, attributed to growth in Xbox console sales, Xbox Game Pass, and other gaming services.

The latest Q3 figures reflect Microsoft's ongoing efforts to deliver its newest Xbox Series X and Xbox Series S consoles to consumers, with high demand and supply constraints still prevalent over one-year post-release. With availability steadily improving, notably for its more affordable Xbox Series S, hardware revenue grew 14% this quarter. It shows the consoles maintaining momentum following a 232% surge in hardware revenue this time last year, after topping the U.S. in dollar sales for March 2022 according to NPD.

Microsoft FY22 Q3 earnings

Source: Microsoft (Image credit: Source: Microsoft)

Xbox content and services also increased 4%, with Microsoft outlining its Xbox Game Pass service and in-house first-party titles among successes. It follows the launch of Xbox Game Studios-published titles like Halo Infinite and Forza Horizon 5 last holiday, helping drive its subscriptions on consoles and PCs. Revenue was reportedly offset by several unnamed third-party titles from the previous fiscal year.

The news comes as Microsoft continues to invest in growing its Xbox content and services, including Xbox Game Pass, with sights set on new platforms. The service now touches consoles, PC, and mobile devices via cloud streaming, with support for more platforms also in the works. The industry-shaking planned acquisition of Activision Blizzard for $68.7 billion also remains underway, showcasing its commitment to supporting its gaming platform and services.

Matt Brown

Matt Brown was formerly a Windows Central's Senior Editor, Xbox & PC, at Future. Following over seven years of professional consumer technology and gaming coverage, he’s focused on the world of Microsoft's gaming efforts. You can follow him on Twitter @mattjbrown.

  • Not sure how MS did it, but they are doing better than Sony at least in the US for supply chain issues. The processors at least are very similar between Series X and PS5
  • Actually, no. The imaging *process* is the same but the processors are very different in at least one key aspect: clock rates. (There's other issues that affect yields but clock rate is the most common.) XBOX processors have fixed clock rates that are also less aggressive than Sony's. The evidence is mounting that Sony is still dealing with the chip yield issues that Bloomberg reported pre-launch. (Even if the yield difference is just a few percent, at the production volumes we're looking at, the difference shows up on tbe shelves.) Basically MS traded clock speed for stability and hence better yields. Beyond that, it now appears that MS contracted for *more wafers* (at a slightly higher price) from the fab because they not only used tbe chips for consoles but also for AZURE server blades. Which is why early on PS5 had higher availability. Since then MS has finished (for now) migrating their Cloud servers to ANACONDA CHIPS so all their available wafers and chips are only split between Series X and Series S (ANACONDA and LOCKHART). And since LOCKHART is about half the size of ANACONDA and clocked marginally lower, their yield is also double. Finally, since the Series S costs less than *half* than the Series S (less RAM, smaller SSD and cheaper SOC) but sells for 60% of the SS price MS makes more money off each wafer devoted to the SS. An added difference: the XBOX SSD's also have more conservative clocks so they use easier to find components. The SOC chip isn't the only supply chain to worry about. Add it all up and MS will have more consoles to sell even if Sony gets the same wafer allocation which, to all recent reports, they don't. MS can be expected to outsell Sony in the US, UK, and maybe elsewhere, on availability alone indefinitely. Finally, keep an eye out come June: MS is reportedly going to release an even cheaper XBOX. Not a console but a dedicated streaming box for those that can't afford even the SS. They gave Sony a headstart by diverting chips to the servers but that is going to start paying off shortly.
  • Very interesting, thanks for the additional info!
  • "Beyond that, it now appears that MS contracted for *more wafers* (at a slightly higher price) from the fab because they not only used tbe chips for consoles but also for AZURE server blades. " That is a pretty cool example of the value of such large conglomerates. JP Morgan wasn't entirely wrong. The rest of your analysis is appreciated too. It just looks like lower-risk business decisions by MS that coincidentally helped during the pandemic. But if fear of taking the sorts of risks that Sony took persists (I don't think it will, but it might) then that'll hurt competitiveness across many industries. Fewer companies willing to push boundaries due to logistics risks.
  • Aggresiveness takes many forms, not just dialing the clock rate to 11. For MS, it can be argued that real aggressiveness lay in:
    1- waiting for AMD to finalize the RDNA2 architecture, even though it meant MS would start XBOX production months after Sony and ship the SDK's later and without support for the full hardware feature set.
    2- architecting ANACONDA with server grade features not needed in consoles but necessary in server blades
    3- counting on 4TF RDNA2 to be more useful than 6TF GCN 2 SCORPIO and ending XBOX ONE production early.
    4- dividing their wafer allocation between cloud server, SX, and SS giving SONY a headstart in the next gen launch, counting on catching up in the second and third years. A rabbit and hare play. All that was done on purpose with a clear long term strztegy to build up the software ecosystem even if it hindered early hardware sales. Sony? Well...
    There's an unverified reason why Sony went so aggresive with PS5 clocks.
    And it's not a strategical reason (as opposed to MS betting on GamePass and cloud).
    Back in 2019 chip watchers ran into a series of trsts for a pre-production SOC called GONZALO. Some evidence suggested it was intended for a next-gen Sony console. Eurogamer speculated: Gonzalo was a fixed clock chip that mapped to the PS4 SOC at double the GPU performance and would have produced a $400 9TF GPU. Perfect for the next Playstation and allowing 100% BC. A few months later similar GPU test results leaked that pointed at ANANCONDA coming in at 12TF.
    At first speculation was that it was a PC card GPU, a new Radeon but further leaks indicated it was an SOC and undoubtedly for XBOX. There was also a very similar 4TF SOC nobody could figure out. (The LOCKHART code name leaked out late but nobody could figure out what for. Why would MS do an XBOX that appdared to be less than the XBOX 1X 6TF?) At that point all GONZALO testing ended.
    Months later a new chip appeared, clearly for Sony. The whispers suggest Sony reworked Gonzalo with faster clocks to get to 10TF to at least get to double figures. Which in turn suggests the PS5 SOC is a rush job. A tactical hail mary. Note that the PS5 shipped with key features (like expandable storage) unsupported. Post launch, it can be argued that Sony is playing catch up to XBOX on PC support, subscriptions, backwards compatibility, (They just launched a team for "software preservation"), first party studios, games as a service, and top level console performance. (They can't catch up to their fans demand after two years, yet the rumors of a PS5+ started almost as soon as they launched.) Basically, MS laid out a plan years ago and they have been executing it on their terms.
    They got lucky in that their plans gave them enough leeway to survive the pandemic and follow-up chip shortage but good planning comes with robust contingencies. Of course having minimal debt, a $16B per quarter net cash flow, and a checkbook $130+ deep all help. 😇 As for other industries and logistics, that's a whole different story.
    A long one.
    The short version is that smart, aggresive logistics management lay in getting out of China or at least supplementing that production elsewhere, preferably close to where you sell.
    (MS manufactures in Vietnam, Malaysia, Thailand, Mexico, etc)
    Anybody still depending solely on China, Inc logistics is in for serious grief starting around mid summer. (Look up Shanghai lockdown and be aware Guangzou is next, possibly even Beijing.)
  • That's interesting, but I *would* call that strategic on the part of Sony, being under the gun to compete with a more comfortable Microsoft, who could afford to play the long game. That's exactly what I mean by lower risk-taking potentially translating into a less competitive field. If Sony knew the kinds of bottlenecks they'd see during the pandemic, they would have played it safe.
  • Diferent definitions for different folks but changing your strategy in response to a competitor is tactical, not strategic. Sony came into the current cycle "believing in generations" and $70 games and have since backtracked on old hardware, PC support, crossgen games, backwards compatibility, PS3 emulation, and subscriptions.
    They swear day and date is poison but that is coming too.
    All tbose things run counter to their planned strategy of "just like last generation", relying on launch window sales of third person narrative games. More of the same. For all their manuevering, the one thing they can't soon deliver is a $250 console with SSD and ray tracing. The SS is the real threat. By the time thdy get tbeir XBOX will be entrenched. They'll survive on brand loyalty which is what saved them in tbe PS3 era but the dsys of outselling XBOX 2:1 are over. They'll be lucky if XBOX doesn't outsell their console. In contrast, where has MS deviated from their 2019 plan?
    Their strategy of Gamepass, cloud, and an entry level half-price box is still in place. They weren't playing it safe. They just zigged while Sony zagged.
    And then the pandemic hit.
    Even without the pandemic and without the chip shortage MS would still be breathing up Sony's back because they are changing the rules of tbe game, as it were. See, Sony's strategies are all about selling games; MS strategy is selling *gaming*. When Spencer says they want to reach non-gamers he isn't lying. He knows Sony fans aren't going to switch so he doesn't bother with them. If they come, fine and dandy, but the people he wants are the ones that can't or won't pay $500 for a box and $70 for a game good for what) 20 hours? 40 hours? The classic under-served market. MS still hasn't dropped the last shoe: Xcloud on TV, both native and over a $100 streaming box. Which will probably be "free" with a 2 year contract to GamePass.
    That is their end game: not 100M console gamers but the billions of TV owners. That strategy might fail but at least they're doing something different.
    Much more interesting than more of the same.
  • The minima for a corporation as Microsoft is the Trust.
    Happy when we have one game AAA per 3 months on XGP and Surface Duo gaming.