Xbox Is Planning Major Layoffs in July as New CEO Lays Out the Business Reality

Key Highlights

• Xbox is reportedly considering major layoffs.

• The cuts could be announced before Microsoft's fiscal year ends this month.

• The number of affected employees has not been disclosed.

• Reports suggest Xbox is looking to significantly reduce budgets in marketing and other departments.

• CEO Asha Sharma has described the current period as a "reset" for Xbox.

• Internal messages reportedly cite overly complex systems and heavy reliance on external vendors.

• Xbox wants to become more self-reliant from an engineering and infrastructure perspective.

Xbox is planning significant layoffs next month, according to a report by Bloomberg, with cuts also expected across marketing and other areas of the business.

The layoffs are tied to the end of Microsoft's fiscal year on June 30. The exact number of people affected has not been confirmed yet, but the scale is being described as a major reset. This news lands just days after the Xbox Games Showcase, making the timing feel particularly sharp for staff who just spent weeks building toward it.

What Did the Xbox CEO Memo Actually Say?

On June 10, Xbox CEO Asha Sharma and Xbox Game Studios head Matt Booty sent a company-wide email reflecting on the first 100 days of Sharma's tenure. The tone started with some genuine wins. Platform teams had shipped more updates in 100 days than in the prior year combined. Game Pass, after 8+months of decline, had started growing again. Gears of War: E-Day and Clockwork Revolution were reintroduced as exclusives. On paper, there was real momentum.

But the second half of the memo was a different conversation entirely. Sharma and Booty laid out five "realities" the business needs to face, and they did not sugarcoat any of them.

The most alarming figure in the memo was the profit margin. Xbox is on track to close the fiscal year at a 3% accountability margin, which is essentially the division's overall profit figure. That number is down year over year.

To make it worse, the memo stated that excluding Activision Blizzard King, Xbox had spent over $20 billion on content, platform, and hardware subsidies over the past five years, while its annual revenue actually declined by nearly half a billion dollars over the same period. "Going forward, this cannot continue," Sharma and Booty wrote plainly.

A Hardware Crisis Nobody Saw Coming at This Scale

One of the more surprising disclosures in the memo was about console components. When Sharma joined as CEO in February, the price Xbox was paying for console storage components was already over twice what it had paid the previous fall. Those costs have since doubled again. Looking ahead to the 2027 holiday season, the company expects yet another significant increase, putting component costs at more than five times what they were just two years ago. Memory costs have tracked similarly.

Sharma acknowledged that while the entire industry is dealing with component pressures, Xbox believes it has been hit harder than its peers because of the "choices we made over the last half decade." The division currently cannot manufacture as many consoles as players want to buy, and a new business model for hardware is on the table. The company has confirmed its commitment to a next-gen console known internally as Helix.

Did Xbox Overextend on Studios?

The studio expansion question was addressed directly in the memo. According to Sharma and Booty, Xbox grew its studio roster to support a pipeline built around multiple strategies at once, covering subscription, streaming, and devices. That approach eventually stretched the division too thin. "We have found ourselves over extended as we executed on changing strategies in a landscape of more readily available content," the memo stated.

"We are the fortunate stewards of industry-defining franchises that have enormous potential and player demand, but we have not adequately funded them to compete and win. At the same time, as we saw this past weekend at Showcase, a reliable pipeline of first- and third-party exclusives and new IP are critical to our success. We need to reassess the balance between these and our investment priorities for the next 5 years."

Is This the Latest in a Long Line of Cuts?

Unfortunately, yes. This would be the latest in a pattern that has repeated itself multiple times. Just about a year ago, Xbox was part of broader Microsoft cuts that impacted 9,100 people company-wide. Within Xbox, that round saw 200 people laid off from Candy Crush maker King, the cancellation of the Perfect Dark reboot and the closure of The Initiative, a scrapped MMORPG at ZeniMax, and the cancellation of Everwild alongside a restructuring at Rare. Before that came a round of 650 cuts across Xbox, and before that, nearly 2,000 in a single wave. The numbers stack up in a way that is hard to overlook.

What Else Came Out of the Bloomberg Report?

As per the Bloomberg report by Jason Schreier, a few additional details emerged beyond the layoff news. The report confirms that Gears of War: E-Day was originally planned for PlayStation 5 and was already in active development for Sony's platform before the decision was reversed. It also reveals that a Halo trailer that had been intended to appear at a recent PlayStation State of Play showcase was pulled before the event.

These are significant details. They suggest that the current exclusivity strategy at Xbox is still actively being shaped, and that decisions made earlier in development pipelines are still being walked back in real time.

What Happens Next for Xbox?

Sharma has been signaling since she took the role in February that hard choices were coming. The moves so far have included dropping the price of Game Pass and removing day-one Call of Duty releases from the service, following a subscriber decline tied to a price increase. The division is now talking openly about a possible reset of its business model, new hardware partnerships, and a rebuilt platform infrastructure it described as overly complex and too dependent on third-party vendors.

"Our current platform infrastructure is not built for the battle ahead. Our systems are overly complex, spanning hundreds of dependencies, which hinders our ability to move fast. We’ve become too reliant on vendors to operate our systems and must become more self-reliant as an engineering culture to build for the future. We must increase the value we ship to players while decreasing the time it takes to do so. Going forward, 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."

"For some of you, these realities will be surprising and even frustrating to discover. We won’t succeed by hiding hard truths, nor will we succeed by doing the same thing and expecting different results. Like the ‘everyday wins’ mentality from the first 100 days, we will sprint to make progress against hardware, content, experience, and services together."

"Let's reset for a stronger Xbox and build the number one gaming and entertainment company," Sharma and Booty wrote to close their memo.