Xbox Plans New Round of Layoffs Amidst Asha Sharma's Led 'Reset'

Xbox is preparing for significant layoffs and an internal restructuring led by new CEO Asha Sharma, who took command earlier this year. These changes, referred to internally as an "Xbox reset," are expected to occur after Microsoft's fiscal year concludes on June 30th. While the exact number of affected employees has not been disclosed, an internal memo indicates the brand has become overextended, with its previous strategy rendered less effective by market changes and the abundance of available content. The restructuring follows a period of industry scrutiny regarding the sustainability of Xbox's rapid studio acquisitions. The plan incorporates both job cuts and voluntary exit programs. Key areas undergoing review for the 2026 fiscal reset include substantial reductions in marketing budgets and a restructuring of studio operations, which may result in studio closures. In contrast, investments in platform infrastructure are planned for future growth.

Sharma has emphasized the necessity of this reset, noting that despite over $20 billion invested in content, platforms, and hardware over the past five years, the division's annual revenue has declined by approximately $500 million during the same timeframe. This initiative is part of a broader strategy to reassess priorities and adapt the company structure to current market challenges. These developments emerge at a challenging time for Xbox, which has struggled to boost Game Pass growth, experienced declining hardware sales, and faced criticism for a lack of major commercial impact launches during certain periods. Sharma announced upcoming changes to Xbox in an Xbox Wire post, explaining that the company's spending has been too high over the past five years, necessitating a balance between first-party and third-party games. She also noted that while Xbox possesses iconic franchises, they have not received sufficient funding to compete effectively.

Sharma previously stated that Xbox needed to reset parts of its operation to adapt to sector changes and evolving player behavior. The executive has also promoted a review of the company's strategy across hardware, services, distribution, and expansion to new platforms. The restructuring plan for 2026 specifically includes the closure of one of the division's major studios, marking the first mention of a studio closure in connection with these changes. An internal memo from Sharma to employees on June 10, 2026, announced layoffs expected in July. Microsoft is also implementing budget cuts in marketing and other operational areas. In its quarterly filing ending March 31, 2026, Microsoft reported a 7% decrease in gaming revenue to $5.3 billion. Hardware sales fell by 33%, with content and services revenue declining by 5%. However, future content includes Gears of War: E-Day and Clockwork Revolution, which will be Xbox console exclusives. An earlier plan for a PlayStation 5 edition of the new Gears of War was canceled following Sharma's decision to shift focus away from multiplatform releases.

Microsoft's Gaming Division Faces Further Restructuring Amidst Unconfirmed Layoffs

These potential changes would mark another round of cuts within Microsoft's gaming division, which has undergone various restructurings in recent years. Microsoft has not yet officially commented on the report.

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