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Microsoft’s fiscal third quarter of 2024 showed a clear squeeze on its hardware businesses. Revenue in the Devices category fell 17% year over year, while Xbox hardware revenue dropped 31%. Yet this was not a broad collapse of Microsoft’s gaming business: gaming revenue increased 51%, largely because the Activision Blizzard acquisition added a full quarter of revenue.
The important distinction is that Microsoft’s hardware weakened while software, services and acquired content made the overall gaming numbers look strong. Microsoft reported revenue declines, not console or device unit figures, so the results show pressure on hardware demand without proving the exact change in units sold.
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Which quarter is Microsoft Q3 2024?
This was Microsoft fiscal Q3 2024, covering the three months ended March 31, 2024. Microsoft announced the results on April 25, 2024. It is not the third calendar quarter of 2024, which would cover July through September.
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Outbyte Driver Updater FREEScan for outdated or missing drivers - takes under a minuteDriver Scan →Outbyte PC Repair FREEClear out junk files and repair common Windows errorsFree Scan →Microsoft’s fiscal year ends June 30, so fiscal Q3 generally covers January through March. The company’s full earnings release is available from Microsoft Investor Relations.
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The headline numbers
| Business or metric | Fiscal Q3 2024 result | What it means |
|---|---|---|
| Microsoft total revenue | $61.858 billion, up 17% | The company as a whole continued to grow strongly |
| More Personal Computing | $15.580 billion, up 17% | Growth included a substantial Activision contribution |
| Devices | Down 17% | The closest reported category to Surface, but not a standalone Surface result |
| Windows OEM | Up 11% | PC-related performance was mixed rather than uniformly weak |
| Gaming | Up 51% | Growth was heavily affected by Activision Blizzard |
| Xbox content and services | Up 62% | Activision contributed most of the reported growth |
| Xbox hardware | Down 31%, or 30% in constant currency | A sharp revenue decline, not a disclosed unit-sales decline |
Microsoft also reported operating income of $27.581 billion, net income of $21.939 billion and diluted earnings per share of $2.94. Those figures all increased year over year, so the hardware weakness did not translate into a decline in Microsoft’s overall earnings.
Surface weakness is real, but Microsoft does not report Surface separately
Microsoft reported that Devices revenue declined 17%, or 16% in constant currency. Management also said that overall Surface demand was slightly lower than expected and reiterated its focus on higher-margin premium products.
That supports the conclusion that Surface hardware was under pressure, but it does not justify saying that “Surface revenue fell 17%.” Microsoft reports the broader Devices category rather than a standalone Surface line in these quarterly materials. The category is the best official proxy available, not an exact Surface-only measurement.
The distinction matters because a Devices result can reflect more than one product category, as well as differences in product mix, pricing, promotions, inventory and regional demand. The defensible summary is: Microsoft’s Devices revenue fell 17%, and management acknowledged weaker-than-expected Surface demand.
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Xbox hardware revenue fell 31%
Xbox hardware revenue declined 31% year over year on a reported basis and 30% in constant currency. The small difference between those figures indicates that foreign-exchange movements were not the main reason for the decline.
However, the number describes revenue, not console units. Microsoft did not disclose a corresponding Xbox console shipment or sales figure in the cited quarterly materials. A 31% revenue decline could reflect a combination of lower unit volume, discounts, regional mix, product mix or average selling prices.
It is therefore inaccurate to write that Xbox console sales fell 31% unless “sales” is explicitly being used to mean hardware revenue. The available evidence establishes a major drop in the money generated by Xbox hardware, but not the precise change in the number of consoles sold.
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Why did gaming revenue rise while Xbox hardware fell?
Microsoft’s gaming revenue increased 51%, even as Xbox hardware revenue declined 31%. Xbox content and services revenue rose 62%. The explanation is the Activision Blizzard acquisition, which closed on October 13, 2023.
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On Microsoft’s earnings call, management attributed 55 percentage points of gaming growth to Activision’s net impact and 61 percentage points of Xbox content-and-services growth to the acquisition. Activision titles, particularly Call of Duty, were important contributors.
These figures do not mean that every dollar of growth came from Activision, nor do they provide a clean measure of the acquired business’s standalone gross sales. They do show that the headline 51% gaming increase was heavily acquisition-assisted rather than evidence of an equivalent organic surge in the existing Xbox console business.
The quarter therefore contained two very different stories:
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- Content and services: sharply higher revenue, with most of the growth attributed to Activision.
- Total gaming: strong reported growth because the software and services expansion outweighed the hardware decline.
Windows OEM rose while Devices fell
Microsoft reported that Windows OEM revenue increased 11%, while Devices revenue fell 17%. That contrast is significant because it argues against describing the quarter as a simple, across-the-board collapse in PC demand.
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Microsoft said PC-market demand was slightly better than expected for Windows OEM. At the same time, premium-device demand and the company’s Devices business remained weaker. Product-cycle timing, channel conditions and the mix of higher-end products could all affect that difference, but Microsoft’s reported figures do not establish one specific cause.
The practical takeaway is that Windows licensing and Microsoft’s own hardware business were moving in opposite directions. A recovering PC market did not automatically translate into stronger Surface results.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Microsoft expected more hardware weakness in fiscal Q4
Microsoft’s outlook suggested that the fiscal Q3 result was not merely a one-quarter anomaly. For fiscal Q4 2024, management expected:
- Devices revenue to decline in the mid-teens year over year.
- Xbox hardware revenue to decline again.
- Xbox content and services growth in the high 50s, with approximately 60 percentage points of that growth expected to come from Activision’s impact.
- More Personal Computing revenue growth of 10% to 13% in constant currency.
The guidance pointed to continued separation between Microsoft’s hardware and services trends: weaker Devices and consoles on one side, and strong content and services growth on the other.
What the quarter says about Microsoft’s hardware strategy
The results strengthen the case that Microsoft’s gaming business is increasingly built around content, subscriptions, digital distribution and services rather than console hardware alone. Activision added major franchises and recurring engagement opportunities, while Microsoft’s broader strategy reaches across Xbox consoles, PCs, cloud services and other devices.
That does not prove Microsoft is abandoning Xbox hardware. The company continued to report and forecast hardware revenue, and one quarter of declining revenue cannot establish a permanent strategic retreat. Nor do these results show that Surface has been discontinued or that Microsoft has stopped investing in premium devices.
They do show the economic contrast clearly. Hardware revenue was under pressure, while software and services generated enough growth to lift the overall gaming business. For Microsoft, gaming success can increasingly be measured through content sales, subscriptions and engagement across platforms even when console revenue is weak.
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They do show:
- Devices revenue declined 17% year over year.
- Management said Surface demand was slightly lower than expected.
- Xbox hardware revenue declined 31%, or 30% in constant currency.
- Gaming revenue rose 51%, and Xbox content and services revenue rose 62%.
- Microsoft attributed most of that gaming and content-services growth to Activision’s net impact.
- Microsoft expected further Devices and Xbox hardware declines in fiscal Q4.
They do not show:
- The exact decline in Surface revenue, because Microsoft does not report it separately here.
- The number of Xbox consoles sold or the precise change in unit volume.
- Whether Xbox hardware was profitable or loss-making.
- That Microsoft is abandoning Xbox consoles or Surface.
- That the entire PC market was weak, since Windows OEM revenue increased 11%.
The bottom line
Microsoft’s fiscal Q3 2024 was a bad quarter for reported hardware momentum: Devices revenue fell 17% and Xbox hardware revenue fell 31%. But it was not a broad failure of the gaming business. Activision Blizzard drove most of the growth in gaming and Xbox content and services, masking the weakness in consoles at the segment level.
The clearest interpretation is that Microsoft’s gaming model is becoming less dependent on hardware sales. Console and Surface demand still matter, but the quarter showed Microsoft relying increasingly on software, subscriptions, franchises and cross-device distribution to produce growth when physical hardware is under pressure.
Sources: Microsoft fiscal Q3 2024 earnings release; Microsoft fiscal Q3 2024 earnings-call transcript; Microsoft Form 10-Q for the quarter ended March 31, 2024.
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