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Xbox software and services Q1 revenue offsets hardware decline

CEO Satya Nadella positions revenue balance as "leading indicator" of Microsoft's ambitions in the gaming sector

Revenue from Xbox software and services increased 21 per cent in the first fiscal quarter, which Microsoft CEO Satya Nadella described as "a leading indicator of where we think the opportunity lies" in gaming as a whole.

In the three-month period ended September 30 2017, Microsoft earned $1.89 billion in revenue from gaming, just 1 per cent higher than the same quarter last year. Within that, revenue from Xbox software and services rose 21 per cent, offsetting what Microsoft described as "lower hardware revenue."

Microsoft is, of course, preparing to launch the Xbox One X next month, which will boost hardware revenue. However, the company has said multiple times that it expects to sell more units of the cheaper and already available Xbox One S.

Judging from comments made by CEO Satya Nadella in a call with investors, Microsoft does not appear to view gaming as a hardware business. Both he and CFO Amy Hood emphasised the growth in software and services revenue, as well as a 13% increase in Xbox Live MAUs across console, PC and mobile - from 47 million last year to 53 million this year.

Nadella asserted Microsoft's ambition to offer "Netflix for games" with Game Pass, which is "off to a very good start." He also talked about the company's play for the streaming market with Mixer

"Once you have the network, you have plenty of different opportunities," he said. "And one of the numbers that I did put in my script was that 20 per cent growth in what we call software and services; that's perhaps a leading indicator of where we think the opportunity lies.

"These are early days for us, but that said, that's probably one of the key numbers to watch as we make progress and execute."

Overall, Microsoft earned $24.54 billion in revenue, up from $21.93 billion year-on-year. Net income also increased, from $5.67 billion to $6.58 billion.

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Matthew Handrahan

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Matthew Handrahan joined GamesIndustry in 2011, bringing long-form feature-writing experience to the team as well as a deep understanding of the video game development business. He previously spent more than five years at award-winning magazine gamesTM.