Microsoft's Xbox Division Announces Major Restructuring and Layoffs

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Microsoft's Xbox division is cutting approximately 3,200 jobs as part of what CEO Asha Sharma called the "most significant restructure in XBOX history." In a message to employees, Asha Sharma said the company is resetting its business after slower-than-expected growth, rising costs and challenges across the gaming industry. Explaining the decision, Sharma said Xbox had learned that it was "not the best home for every type of studio" and that "in a typical year, we lost 64 cents for every dollar we invested." The restructuring also includes changes to Xbox's studio portfolio and management structure.

Xbox layoffs affect 3,200 employees

Sharma said the restructuring will take place throughout fiscal year 2027. About 1,600 positions will be eliminated immediately, while the remaining reductions will happen over the coming months. She also announced that four studios will move to new ownership. “I know this is painful,” Sharma wrote. “These changes will directly affect people who have poured their creativity into building XBOX.” She added that the layoffs do not reflect employees' "talent or dedication."

CEO Asha Sharma explains why Xbox is restructuring

According to Sharma, Xbox's business has been under pressure despite investments in Game Pass, multi-platform gaming and expanding its content portfolio. "Our business today is not healthy," she wrote. "We are operating at margins that are 3-10x lower than comparable platform and publishing businesses." She added that those businesses "did not grow at the pace we expected," while the company's core business weakened as Xbox continued adding teams and investment. Sharma said Xbox expanded aggressively by acquiring studios but has now changed its strategy. "It is neither possible nor desirable to own every great independent studio," she wrote. "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 part of the restructuring, Compulsion Games and Double Fine Productions will become independent studios again.

Xbox simplifies management structure

Asha Sharma also announced major organisational changes. She said some parts of Xbox currently have as many as 14 layers of management. The company plans to reduce that to no more than five layers, and where possible, three. Xbox will also reduce vendor spending by 50% and simplify development tools and shared services. Despite the restructuring, Sharma said the company remains committed to investing in gaming. "These changes are about a bigger future for XBOX, not a smaller one," she wrote. She added that Xbox expects to "return to growth in 2027" and wants to become "one of the few companies that entertains more than a billion people each day." "History is full of companies that mistake longevity for inevitability. We will not be one of them," Sharma said.