Microsoft’s Xbox video game division is implementing “the most significant restructure” in its 25-year history, CEO Asha Sharma announced Monday, with 3,200 workers receiving pink slips.
Of the projected layoffs, 1,600 will take immediate effect, with the balance occurring over the rest of fiscal 2027. In addition to the job cuts amounting to a 20% reduction of staff, four video game studios will be leaving Xbox, Sharma said.
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The video game cutbacks are part of 4,800 company-wide layoffs announced by Microsoft on Monday.
“We must reset Xbox,” Sharma wrote in a bluntly worded memo to employees. “Our business today is not healthy.”
Sharma took the reins of the gaming unit as CEO last February in a management shuffle that saw 38-year Microsoft veteran Phil Spencer depart, ending a 12-year run overseeing Xbox.
“I recognize that a year-long restructuring creates additional challenges,” Sharma wrote. “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.”
While overall video game revenue has remained steady, the sector is being reshaped by a number of trends, notably the rise of mobile and casual gaming. The traditional, tentpole-driven console game business has become financially challenging, and major publishers like Ubisoft have also announced drastic cutbacks in recent months.
Sharma said Xbox is operating at margins three to 10 times lower than its rivals. In a bid to revitalize growth, she said, the company placed bets on its Game Pass service, along with multi-platform titles and a broader portfolio of content. “While those businesses have created meaningful value, they did not grow at the pace we expected,” she wrote. “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.”
As it looks to streamline and simplify its internal investment and development processes, Xbox has established a chief operating officer role, Sharma announced. Helen Chiang, who has been at the gaming division for nearly two decades. In another personnel move flagged in Sharma’s memo, Dave McCarthy is retiring after 17 years with the company.
“These changes are about a bigger future for Xbox, not a smaller one,” the CEO emphasized. “History is full of companies that mistake longevity for inevitability. We will not be one of them.”
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