Microsoft Xbox Plans Major Layoffs as New CEO Orders 'Reset'

Microsoft's Xbox division is preparing for major layoffs next month — the first significant restructuring under new CEO Asha Sharma, who took charge of the gaming unit in February 2026 after the retirement of longtime chief Phil Spencer. Sharma and Xbox content chief Matt Booty sent a blunt internal memo to staff on June 10 laying out the financial reality, according to Bloomberg.

The numbers are stark: excluding Activision Blizzard King, Xbox spent over $20 billion on content, platforms, and hardware subsidies over five years — while annual revenue declined by nearly half a billion dollars in the same period. "Going forward, this cannot continue," Sharma and Booty wrote.

Xbox's accountability margin — an internal Microsoft metric for profitability — had fallen to roughly 3%, Reuters reported, citing the internal email.

Beyond the revenue slide, Sharma pointed to a hardware component crisis that is reshaping Xbox's console strategy. In her internal memo, she wrote that component costs for the 2027 holiday season "are expected to be over 5x the prices we paid only two years earlier," with memory costs following a similar trajectory, according to The Verge.

The hardware business has been hit especially hard. Hardware revenue fell 33% in the most recent quarter, while content and services revenue dropped 5%, according to Microsoft's own earnings data cited by.⁴

Sharma signaled a shift toward hardware partnerships, writing that Xbox "needs a new business model and partnerships for hardware as we remain committed to Helix" — the company's future console project. This opens the door for PC OEMs to produce Xbox‑branded devices using future AMD chips, The Verge noted, aligning with recent hints from Sharma and strategy chief Matthew Ball about "radically different" console business models.

The layoffs are part of a broader 100‑day "Xbox reset" plan that Sharma is driving. Her first major strategy shift came in April 2026 when Microsoft lowered Game Pass pricing and ended day‑one releases of future Call of Duty titles on the subscription service — a move that marked a sharp departure from the all‑in‑on‑subscriptions strategy under previous leadership.

At Sunday's Xbox Games Showcase, Sharma doubled down on exclusivity, confirming that Gears of War: E‑Day and Clockwork Revolution will be Xbox console exclusives. Bloomberg reported that a PlayStation 5 version of the new Gears of War had been in development and was canceled ahead of the announcement.

Sharma also committed to rebuilding Xbox's technology stack entirely. "Our current platform infrastructure is not built for the battle ahead," she wrote, according to The Verge. "We'll evolve and rebuild our stack and look at capabilities across all of Xbox and potential M&A to help us win in hardware, PC, mobile, and streaming."

The exact scale of the layoffs is not yet clear. ¹ described them as "significant" and noted they are expected shortly after Microsoft's fiscal year closes on June 30. Marketing budgets and some other areas of the business will also see substantial cuts, according to people familiar with the plans.

The Verge reported that internal preparation for the cuts has been underway for weeks, and that the restructuring could involve studio closures or changes to the Xbox studio lineup. Giant Bomb rumors suggested the cuts could reach up to 1,000 positions, though that figure remains unconfirmed by Microsoft, which declined to comment to multiple outlets.

The Xbox cuts are the latest in a grinding wave of layoffs across the gaming industry. According to Game Developer, this is the latest in a series of workforce reductions at Microsoft's gaming division that have affected workers across "a myriad of levels, teams, and geographies."

The wider industry picture is equally grim: a GDC survey found that 28% of gaming industry workers lost a job in the last two years, with one in three respondents affected by layoffs, according to Luminate. Ubisoft alone has conducted multiple rounds of layoffs in 2026 as part of an ongoing restructuring, most recently cutting 380 positions with the closure of studios in Winnipeg and Belgrade, according to GamesIndustry.biz.

More than 117,000 tech workers have been laid off in 2026 as of June, according to tracking site Layoffs.fyi cited by.⁶ The Xbox cuts add another chapter to an industry grappling with post‑pandemic overhiring, rising development costs, and shifting consumer spending patterns.

For developers building on Xbox, the reset signals several concrete shifts. The move toward hardware partnerships and a possible PC OEM ecosystem could expand the Xbox install base beyond traditional consoles — but could also fragment the development target. Studios building Xbox exclusives may find a more focused — if smaller — team on the other side of these cuts.

The emphasis on rebuilding platform infrastructure suggests Microsoft sees cloud streaming, mobile, and cross‑platform play as growth vectors even as the core console business shrinks. And with Sharma explicitly naming M&A as a tool in the reset, expect Xbox to continue acquiring studios and technology — but with far more discipline than the $20 billion spend of the previous five years.