Xbox is undergoing the deepest overhaul in its history, and the numbers behind it are stark. CEO Asha Sharma told employees Monday the division will cut its workforce by approximately 3,200 people, roughly 20% of Xbox’s total staff, over the next year, according to her memo posted on Xbox Wire, with 1,600 role eliminations taking effect immediately.
The cuts are part of a broader Microsoft-wide reduction of 4,800 jobs announced the same day.
Read: Microsoft Set to Cut Over 5,000 Jobs This Week, Sales and Xbox Hit Hardest
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“Our business today is not healthy,” Sharma wrote, citing margins “3 to 10x lower than comparable platform and publishing businesses” and noting that “in a typical year, we lost 64 cents for every dollar we invested.”
She pointed to a costlier console generation with a smaller install base, a bet on Game Pass and multi-platform releases that didn’t grow as fast as expected, and what she called “the most severe hardware crisis” the industry has faced, an apparent reference to AI-driven component shortages that have pushed hardware costs sharply higher.
Four studios, Compulsion Games, Double Fine Productions, Ninja Theory, and Undead Labs, are being spun out or sold rather than shut down outright. Compulsion Games and Double Fine will return to independent management with their existing IP and catalogs intact, while Ninja Theory and Undead Labs are moving to new ownership with funding to complete their current projects, Senua’s next game and State of Decay 3, respectively.
Arkane’s French studio is a separate case: its management is beginning a legally required consultation with its Works Council to review “potential strategic options,” Sharma said, suggesting the studio’s fate is still unresolved.
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Sharma was explicit that “none of our first party publicly announced games or projects are being cancelled” in this round, directly contradicting earlier reports that Arkane’s Marvel’s Blade had been scrapped.
She also outlined a management overhaul alongside the cuts. Xbox’s platform teams have grown 40% larger than they were at the start of this console generation, even as player base and playtime declined. In some parts of the business, decisions pass through as many as 14 layers of management, which Sharma said will be cut to five or fewer, ideally three.
She promoted Helen Chiang, a nearly two-decade Xbox veteran who previously led the Minecraft franchise, to a newly created chief operating officer role with end-to-end responsibility across content, hardware, platform, and services. Dave McCarthy, who held operations leadership for 17 years, is retiring.
Microsoft‘s (Nasdaq: MSFT) most recent quarterly revenue came in at $82.9 billion, up 18% year over year, with earnings per share climbing 23%, even as Xbox content and services revenue fell 5% in the same period.
The company has guided for roughly $190 billion in AI infrastructure spending this fiscal year, a 61% jump from the year before and well above what analysts had expected. Microsoft’s stock, meanwhile, posted its worst monthly decline since 2000 in June, falling 19%, as investors questioned whether that spending will pay off at the scale the company is betting on.
The Communications Workers of America, which represents more than 3,500 Microsoft gaming employees across Xbox and Activision Blizzard studios, held a press conference on June 29, days before the layoffs began, to demand layoff protections the union says it had been negotiating for months.
US companies have announced 123,653 reductions through late June 2026, up 66% from the same period last year, with AI cited as the top reason for layoffs for four straight months, according to Challenger, Gray & Christmas‘s June report.
