In the fiscal year ending June 30, 2025, Microsoft's Xbox division reported a 10% increase in gaming revenue compared to the previous year. This growth was primarily driven by a 13% rise in content and services revenue, largely attributed to the strong performance of first-party games and the expansion of Xbox Game Pass, which reached nearly $5 billion in annual revenue for the first time. However, hardware sales experienced a 22% decline year-over-year, possibly due to earlier price increases for Xbox Series consoles and accessories.

Despite the positive financial performance, Microsoft has undertaken significant restructuring within its gaming division. In July 2025, the company announced layoffs affecting studios such as Turn 10, King, and The Initiative, and canceled projects like "Perfect Dark" and "Everwild." These decisions have reportedly impacted morale, particularly at ZeniMax Online Studios, even as Microsoft continues to invest in generative AI technologies.

In hardware developments, Microsoft is collaborating with Asus to introduce the ROG Xbox Ally, a handheld gaming device set to launch in late 2025. This device aims to provide a portable gaming experience compatible with Xbox Game Pass and other platforms, marking Microsoft's entry into the handheld gaming market.

Additionally, leaks suggest that Microsoft is developing a next-generation Xbox console, codenamed "Magnus," expected to launch as early as late 2026. This console is rumored to feature AMD's upcoming RDNA 5 GPU and Zen 6 CPU architecture, targeting native 4K gaming at 120 frames per second with enhanced ray tracing capabilities. The device is also expected to offer robust backward compatibility across PC and Xbox consoles, allowing gamers to retain their libraries when upgrading.

Despite recent layoffs and project cancellations, Xbox is celebrating the 40th anniversary of its long-time partner developer, Rare. The celebration includes in-game events in "Sea of Thieves," new merchandise, and a special commemorative vinyl collection. These initiatives honor Rare's legacy and contributions to the gaming industry over the past four decades.

In summary, while Xbox continues to experience financial growth and is expanding its hardware offerings, it is also navigating strategic shifts and organizational changes. The upcoming ROG Xbox Ally and potential next-generation console "Magnus" reflect Microsoft's commitment to innovation in the gaming sector. At the same time, the company is addressing internal restructuring and celebrating longstanding partnerships, indicating a dynamic period for the Xbox brand.