Today, Microsoft shared its fiscal first quarter earnings report, which also happens to be the first nearly full quarter (minus just a few days) since Xbox chief Asha Sharma announced “the most significant restructuring in Xbox history.” While it’s certainly far too early to meaningfully say what impact cutting more than 1,600 jobs (3,200 by July next year) and breaking up several beloved Microsoft-owned studios will have on Xbox’s finances, it’s perhaps nonetheless notable that so far it doesn’t appear to have had a major effect on the number Microsoft considers important enough to share with investors.
For the first quarter (July, August and September) of the new fiscal year, Microsoft announced that revenue from Xbox content and services was down 2% thanks to declines in third-party content and Xbox Game Pass, which saw a price reduction take effect in April. Hardware revenue fell 14% year-over-year, which has happened reliably almost every quarter for years (down 13% year-over-year last quarter, 33% the quarter before that, etc.).
There is a note in the results that highlights the impact of the “reset”. The overall division that Xbox is in (Devices and Consumer) saw operating expenses drop 3 percent “led by Xbox,” which could indicate that Sharma’s cuts saved money. However, this decline was offset by “continued investments in computing capacity and R&D talent.” So, at least in part, laying off all those Xbox employees helps Microsoft spend more money on research and development for Windows, or research and advertising, or something else under that umbrella.
Additionally, Microsoft reports that, for the Devices and Consumer segment, “cost of revenue decreased 8%, due to lower amortization of intangible assets resulting from the Activision acquisition.” This appears to mean that the division had lower costs last quarter, as things like trademarks and patents that the company obtained when it acquired Activision are now considered worth less than they were when Xbox initially obtained them.
It’s a little early to determine with any real certainty, from the outside, what financial impacts Sharma’s changes will have on Xbox. A few things stand out: Game Pass costs less and consoles cost more. The first seems to have done nothing yet to increase Game Pass revenue, and the second continues to scare away consumers. We might see bigger swings later, once Xbox has a few more major releases to keep things moving; as it stands, there has only been one remake (Halo) this quarter and the PS5 ports of Black ops 1 and 2which sold 11 million copies on PlayStation but doesn’t seem to have moved the needles of the division as a whole. Still, laying off a bunch of people doesn’t change market conditions or magically sell more Xboxes. It remains to be seen what precisely this will do to the numbers at Xbox that Microsoft is keen enough to show its shareholders.
Gn tech
