Microsoft layoffs: Xbox is cutting 3,200 jobs, CEO Asha Sharma writes memo to employees, read full text

Xbox is set to cut 3,200 jobs. The Microsoft gaming division is going through restructuring as part of Xbox CEO Asha Sharma's new strategy to improve the business. In an internal memo, Sharma announced that Xbox was laying off 1,600 workers as part of a broader layoff round at Microsoft that impacts 6,400 jobs. With 1,600 more roles to be eliminated within the next 12 months.

Xbox is said to have roughly 16,000 workers globally. That is, the company is planning to lay off a total of 20 per cent of its entire staff. Asha Sharma, who was appointed as Xbox CEO in February this year, has been making sweeping changes within the gaming division.

She called the decision the “most significant restructure in Xbox history.” Apart from layoffs, Asha Sharma also revealed plans to spin-off four Xbox gaming studios with plans to part ways with a fifth as well.

This decision comes just weeks after Asha Sharma signalled that the company was planning for an “Xbox reset.”

Xbox business not healthy

Microsoft has invested billions of dollars in Xbox in recent years, including big name acquisitions such as Activision Blizzard for $69 billion in 2023. Despite these investments, Asha Sharma says that Xbox has failed to generate desired returns. "Our business today is not healthy, she wrote.

As per the Xbox CEO, the division’s margins were "3–10 times lower than comparable platform and publishing businesses.”

Sharma said no publicly announced first-party games or projects would be cancelled as part of the restructuring, but cuts would affect the whole organisation, including teams Xbox is keeping.

This comes at a time when Microsoft is pushing towards more investment in AI, with the tech giant already having laid off thousands of workers globally.

Xbox to spin-off some gaming studios

Asha Sharma stated that while Xbox had made big bets in many areas such as Game Pass and broader content portfolios, the business was not growing at an expected pace. "In a typical year, we lost 64 cents for every dollar we invested," Sharma wrote.

She said acquisitions since 2018 had created value, but had also left Xbox owning

more studios than it could effectively support. "It is neither possible nor desirable to own every great independent studio," she wrote, adding that Xbox wanted to help independent creators with open development tools and access to audiences.

As part of the changes, Ninja Theory and Undead Labs will move to new ownership, with funding to complete and grow Senua and State of Decay 3. Compulsion Games and Double Fine Productions will return to independent ownership under their founders, with runway funding and full ownership of the intellectual property they have developed, including their back catalogue.

In France, Arkane Studios has begun the required consultation process with its Works Council to review strategic options, including a sale or spinout. The process is expected to take longer because of French labour laws.

All five studios were bought during the expansion drive under former Xbox chief Phil Spencer, whose strategy relied on acquisitions ranging from smaller developers to major publishers such as Activision Blizzard and ZeniMax. The aim was to strengthen Xbox Game Pass, but growth in the subscription service flattened.

As per reports, Game Pass is said to have around 30 million subscribers, lower than Microsoft’s projected user base of 77 million by this year.

Less layers, first Xbox COO

Xbox is also making deep changes to its platform division. Sharma said some work currently passes through as many as 14 layers of management, which will now be cut down to just five at most. The Xbox CEO added that the division will have a flatter structure built around makers, player-coaches and directly responsible individuals.

Asha Sharma also added that platform teams were 40 per cent larger than they were at the start of this console generation even as the player base and playtime have declined.

As part of the changes, Xbox appointed its first ever chief operating officer, who will be responsible for overseeing the entire business’ profit and loss. Helen Chiang, a Minecraft studio veteran has been promoted to the post and will report to Sharma. Minecraft maker Mojang and King – the maker of Candy Crush, are two of Xbox’s biggest businesses, which will now also report directly to Asha Sharma.

You can read the full memo from Asha Sharma below:

“This is an important email I sent today to all employees at XBOX:

Team,

We are beginning the most significant restructure in XBOX history. After careful consideration, I've made the difficult decision to reduce our team by approximately 3,200 throughout FY27. This will include approximately 1,600 role eliminations today, and in addition, four studios will leave XBOX to new management. I recognise that a year-long restructuring creates additional challenges. Unfortunately, it is not possible to make all the necessary changes in a single day, and I wanted to be direct about the scale.

I know this is painful. These changes will directly affect people who have poured their creativity into building XBOX. Many joined us through acquisitions, while others were recruited here, or sought us out because they loved this industry and loved XBOX. Today's decisions do not reflect their talent or dedication.

Our business today is not healthy. We are operating at margins that are 3–10x lower than comparable platform and publishing businesses. We entered Gen 9 with a smaller install base and a higher cost structure. To grow, we bet on Game Pass, multi-platform, and a broader portfolio of content. While those businesses have created meaningful value, they did not grow at the pace we expected. As that happened, our core business weakened, and we added more teams, more investment, and more time, hoping for a better outcome. And now the industry is facing the most severe hardware crisis in its history. We must reset XBOX.

First, we will reset our content portfolio.

Since 2018, we have aggressively expanded our studio portfolio while the number of games created each month across the industry now outpaces the last ten years combined. We now find ourselves competing not only with the largest publishers, but also with smaller independent studios. It is neither possible nor desirable to own every great independent studio. We have also learned that we are not the best home for every type of studio; in a typical year, we lost 64 cents for every dollar we invested. As we reset XBOX, we will help independent creators succeed by providing open development tools and audiences to realise their vision.

Compulsion Games and Double Fine Productions will return to management and transition to independent studios with their IP, catalogue, and runway for their next games. Ninja Theory and Undead Labs have entered terms to join new ownership with funding to complete and grow Senua and State of Decay 3. In France, Arkane's management is beginning required consultation with its Works Council to review potential strategic options.

We are also making reductions across other units, and in some cases, shifting investment to focus on higher priority projects. These changes vary in size across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and XBOX Game Studios. None of our first party publicly announced games or projects are being cancelled as part of these reductions.

In addition, Mojang and King will now report directly to me. These two studios have increasingly become platforms and are our largest by monthly active players. They bring critical geographic, demographic, and differentiation to XBOX.

Second, we will reset our platform.

We know that great technology gets better when it gets simpler, not bigger. Today, in some parts of the company, work passes through as many as 14 layers of management. Our platform teams are 40% larger than they were at the start of this generation, even as our player base and playtime have declined. That complexity has slowed decisions, blurred accountability, and made it harder to deliver for players. As we reset XBOX, we will simplify.

We will reduce management layers to no more than 5, and where possible, 3. We will deliver success through a flatter organisation that is built around makers (individual contributors focused on building), player-coaches (leaders who remain deeply involved in the work while developing their teams), and directly responsible individuals (DRIs) who own key decisions and outcomes. And we will streamline how we work across our tools, with a cleaner code base, shared services, and 50% reduced vendor spend.

Third, we are resetting how we operate.

As XBOX grew our headcount, we became more fragmented. Teams, studios, and functions often operate independently, and it became harder to work towards a shared goal, make the right trade-offs, and get things done.

For the first time, we are establishing a Chief Operating Officer with end-to-end P&L responsibility across content, hardware, platform, and services. Helen Chiang has been promoted to this role and will report directly to me. Over nearly two decades at XBOX, Helen has helped build some of our most important businesses, from XBOX Live to leading Mojang and the Minecraft franchise. She will bring our businesses together under one operating model, making sure we make clear investment decisions, learn from our successes and failures, and hold ourselves accountable for results.

Thank you, Dave McCarthy, who is retiring after 17 years with XBOX. Dave has played a defining role in building the platform that millions of players rely on every day and has been a trusted partner through many of the biggest moments in XBOX's history. We wish him all the best.

These changes are about a bigger future for XBOX, not a smaller one. The next decade of gaming will be larger, more global, and more creative than anything we've seen before. This year, we'll invest as much in XBOX as we ever have, but we'll invest with greater focus, greater discipline, and greater clarity, all in service of making XBOX where the world plays and creates.

I want XBOX to be one of the few companies that entertains more than a billion people each day and gives everyone the opportunity to create and connect. I know we can achieve this goal. XBOX has many of the most beloved franchises in entertainment history, talented studios around the world, and we will return to growth in 2027.

History is full of companies that mistake longevity for inevitability. We will not be one of them.

Asha”