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Microsoft sees a big dip in gaming revenue, but don't blame the PC

(Image credit: Microsoft)

Microsoft has been making a concerted effort towards PC gaming with things like the Game Bar in Windows 10 and its DirectX Raytracing (DXR) API, and that's all been well and good. Despite it all, however, the company reported a drop in gaming revenue over the past year. It's the only area that Microsoft saw a decline as it tallied up the numbers. What gives?

Don't blame the PC. Coming off the fourth quarter for its fiscal 2019 period, Microsoft noted a 10 percent ($233 million) year-over-year decline in gaming revenue, and a 3 percent drop in Xbox software and services. Every other sector saw an uptick in revenue, with most of Microsoft's various businesses posting double-digit percentage gains.

As it pertains to gaming, the biggest culprit is the company's Xbox console.  Xbox hardware revenue dropped a whopping 48 percent, "primarily due to a decrease in volume of consoles sold."

Microsoft didn't provide any context for the slide in console sales, but the trend is not likely to reverse until its next hardware iteration, codenamed Project Scarlett. Both Microsoft and Sony are prepping next-gen consoles for a 2020 release, each of which will be powered by a custom AMD Zen 2 CPU and Navi GPU.

Due to this, Microsoft is likely undeterred by the drop. It was not that long ago when Microsoft said it was "pursuing an expansive opportunity in gaming," both in terms of creation and distribution, and how games are played and viewed.

"Xbox Live now has 57 million monthly active users, and we are investing in new services like Mixer—which blurs the line between watching and playing—and Game Pass, our new unlimited subscription service. The addition of five new gaming studios this year bolsters our first-party content development to support our fast-growing gaming services. And our acquisition of PlayFab accelerates our vision to build a world-class cloud platform for the gaming industry across mobile, PC and console," Microsoft CEO Satya Nadella said in October 2018.

Since then, the number of Xbox Live subscriptions has grown to 65 million.

Meanwhile, Microsoft's PC revenue increased $468 million, which is a modest 4 percent jump. Windows revenue went up 7 percent "driven by healthy Windows 10 demand." 

That said, Microsoft did not post an update on the number of active Windows 10 installations in the wild. Back in March, however, Microsoft's corporate vice president of modern life and devices, Yusuf Mehdi, tweeted that Windows 10 had reached 800 million devices "and the highest customer satisfaction in the history of Windows."

Assuming the number still stands at 800 million, Microsoft is 200 million short of the 1 billion goal it had set for Windows 10 within the first 2-3 years following its release in 2015. It will likely get there, even if it takes twice as long as Microsoft had originally anticipated.

Edit: This article originally attributed a quote from Satya Nadella as being current, but his statement was made in October 2018. This has been corrected.