Xbox Plans Major Layoffs: A 'Reset' Under New Leadership

Microsoft's Xbox division is preparing for a major restructuring. According to Bloomberg and multiple industry sources, the company plans significant layoffs next month as newly appointed CEO Asha Sharma moves to "reset the business" and stem declining revenue.

The cuts are expected to occur shortly after Microsoft's fiscal year ends on June 30, 2026. While the exact number of affected employees remains unclear, sources describe the layoffs as "major" and suggest they could even involve studio closures or significant changes to Xbox's studio lineup.

This marks Sharma's first major organizational move since taking over as Xbox CEO in February 2026. She has been candid about the division's struggles, telling staff in a recent memo: "We won't succeed by hiding hard truths, nor will we succeed by doing the same thing and expecting different results."

The Hard Numbers: $20 Billion Spent, Revenue Down $500 Million

In an internal memo obtained by Bloomberg and later made public, Sharma laid out the stark financial reality facing Xbox.

The numbers are striking. Microsoft spent tens of billions to build up Xbox's content pipeline — including the blockbuster $68.7 billion acquisition of Activision Blizzard — yet the core gaming business (excluding that acquisition) has seen revenue shrink by half a billion dollars while costs ballooned.

"Going forward, this cannot continue," Sharma wrote in the memo, signaling that the era of unchecked spending on content and hardware subsidies may be ending.

The 'Five Realities' Facing Xbox

In a joint memo to staff, Sharma and Chief Content Officer Matt Booty outlined what they called five "realities" that Xbox must confront:

Sharma acknowledged that some employees might find these realities "surprising and even frustrating." But she insisted that transparency is necessary for the business to pivot effectively.

She also noted that Xbox has become "too reliant on vendors to operate our systems" and must "become more self-reliant as an engineering culture."

The Hardware Component Crisis

One of the most alarming revelations in Sharma's memo concerns console component costs. The AI-driven memory shortage that has plagued the broader tech industry is now hitting Xbox hard.

"Memory costs have followed a broadly similar trajectory," Sharma wrote, warning that Xbox is currently "unable to make as many consoles as players want to buy" due to these component shortages.

The situation is so severe that Sharma believes the traditional console business model may no longer be viable. In a recent interview, she stated: "I think we've reached a point where it will be hard to imagine that mass audiences can afford thousands of dollars to spend on a console generation."

This directly impacts Project Helix — the codename for Xbox's next-generation console — which is currently planned for a 2027 holiday launch. Sharma indicated that Microsoft needs "a new business model and partnerships for hardware" to make Helix work.

New CEO's Strategy: What's Changing?

Since taking over in February 2026, Asha Sharma has already implemented several significant changes to Xbox's direction.

Exclusivity Strategy Shift

Sharma has pulled back on Xbox's multi-platform release strategy. According to Bloomberg, she made the decision to cancel the PlayStation 5 version of Gears of War: E-Day — a game that was originally in development for Sony's console. She also reportedly pulled a trailer for Halo: Campaign Evolved from a PlayStation State of Play event, potentially damaging Microsoft's relationship with Sony.

Xbox has now committed to only two major exclusive titles going forward, with Sharma stating that exclusivity decisions will be evaluated on a case-by-case basis as the company recovers.

Game Pass Adjustments

Microsoft has already made changes to its subscription service, including price adjustments and a major policy shift: future Call of Duty titles will not launch day-and-date on Game Pass — a reversal of previous strategy.

Studio Portfolio Review

The reported layoffs may involve studio closures. Sources told The Verge that the cuts could lead to "a studio closure, or changes to the Xbox studio lineup." This would follow previous studio closures under Sharma's predecessor, Phil Spencer, which included The Initiative — the studio tasked with rebooting Perfect Dark.

Hardware Partnerships

Sharma has hinted that Xbox may allow other PC OEMs to create Xbox-branded devices based on new AMD chips, similar to how Microsoft has partnered with manufacturers for Windows PCs. This would represent a fundamental shift away from the traditional closed console model.

Key Takeaways