Microsoft’s Xbox gaming division is undergoing its biggest restructuring in its 25-year history, with CEO Asha Sharma announcing on Monday that 3,200 employees will be laid off as part of a sweeping overhaul aimed at reviving the business.
Of the total job cuts, 1,600 employees will be laid off immediately, while the remaining reductions will take place through fiscal 2027. The layoffs represent around 20 per cent of Xbox’s workforce. Sharma also confirmed that four game studios will exit the Xbox division as part of the restructuring.
The Xbox cuts are part of Microsoft’s broader plan to eliminate 4,800 jobs across the company.
In a candid memo to employees, Sharma acknowledged the scale of the challenge.
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…
— ASHA (@asha_shar) July 6, 2026
‘We Must Reset Xbox’
“We must reset Xbox. Our business today is not healthy,” she wrote.
Sharma took over as CEO of Xbox in February following a leadership reshuffle that saw longtime Microsoft executive Phil Spencer step down after leading the gaming business for 12 years.
Acknowledging the impact on employees, Sharma said the restructuring would extend over the coming year.
“I know this is painful. These changes will directly affect people who have poured their creativity into building Xbox. Today’s decisions do not reflect their talent or dedication,” she wrote.
Despite steady overall gaming revenue, Sharma said the industry has been reshaped by the rapid growth of mobile and casual gaming, while the traditional console business has become increasingly difficult to sustain. Several major publishers, including Ubisoft, have also announced significant workforce reductions in recent months.
Industry Facing Most Severe Hardware Crisis In Its History
According to Sharma, Xbox currently operates at profit margins three to ten times lower than its competitors. While investments in Game Pass, multi-platform titles and a broader content portfolio created value, they failed to generate the expected growth.
“As that happened, our core business weakened, and we added more teams, more investment and more time, hoping for a better outcome. Now the industry is facing the most severe hardware crisis in its history,” she said.
As part of the reorganisation, Xbox will create a new Chief Operating Officer position, with long-time executive Helen Chiang expected to take on the role. Sharma also announced the retirement of Dave McCarthy after 17 years with the company.
Emphasising that the restructuring is intended to strengthen the gaming business, Sharma said, “These changes are about a bigger future for Xbox, not a smaller one. History is full of companies that mistake longevity for inevitability. We will not be one of them.”
