Xbox is reportedly preparing for another round of layoffs less than a year after major workforce reductions at parent company Microsoft, as new CEO Asha Sharma moves ahead with a sweeping 100-day restructuring effort aimed at reviving the gaming business.
According to a report by Bloomberg, the Microsoft gaming division is expected to begin a fresh round of job cuts shortly after the close of Microsoft's fiscal year on 30 June. The report comes as Sharma seeks to address declining profitability, rising costs and long-term questions about Xbox's business model.
The move would mark the second layoff round affecting Xbox within 12 months. Last July, Microsoft cut 9,000 jobs across the company, with gaming among the affected divisions.
The exact number of employees who could be impacted in the latest round remains unclear.
Mounting pressure on Xbox finances
The planned cuts follow a stark assessment from Sharma about the state of the Xbox business.
In a memo shared with employees and later published on Xbox's website, Sharma said the division's profitability had weakened significantly despite years of heavy investment.
She disclosed that, excluding Activision Blizzard King, Xbox had invested more than $20 billion over the past five years across content, platforms and hardware subsidies, while annual revenue declined by nearly $500 million during the same period.
Key figures highlighted by Sharma include:
- More than $20 billion invested over five years
- Nearly $500 million decline in annual revenue over the same period
- Xbox accountability margin reduced to 3%
- A new 100-day Xbox reset programme launched to improve performance
"Going forward, this cannot continue," Sharma and Xbox Chief Content Officer Matt Booty told employees in the memo.
Layoffs may be accompanied by broader restructuring
Reports suggest the workforce reductions could extend beyond headcount cuts.
According to Bloomberg, Xbox may also make changes to its studio portfolio. Reports cited by India Today indicate that some studios could face restructuring and that at least one studio closure is being discussed internally.
Meanwhile, gaming podcast Giant Bomb reported rumours of up to 1,000 layoffs across the division, although Microsoft has not confirmed that figure.
The reports also point to budget reductions in several departments, including marketing.
The planned actions reflect a broader effort by Xbox leadership to reshape operations after years of investment that have not translated into stronger financial performance.
Hardware costs add to the challenge
Revenue pressures are not the only issue facing Xbox.
Sharma warned that the division is also grappling with a sharp increase in hardware costs.
According to the memo, component costs for the 2027 holiday season could be more than five times higher than they were just two years ago. Similar cost pressures are affecting memory chips used in gaming hardware.
The rising costs come as Xbox continues work on Project Helix, Microsoft's next-generation console platform.
Sharma acknowledged that the company is currently unable to manufacture enough consoles to meet customer demand and said Xbox would need new hardware partnerships and a revised business model to support future growth.
"We are currently unable to make as many consoles as players want to buy, and we need a new business model and partnerships for hardware as we remain committed to Helix," she wrote.
Gaming industry continues workforce reset
Xbox is not alone in reassessing costs and staffing levels.
Several major gaming companies have announced job reductions over the past year as the industry adjusts to slower growth, rising development costs and changing consumer spending patterns.
Reports indicate that both Take-Two Interactive, publisher of the Grand Theft Auto franchise, and Electronic Arts (EA) have reduced headcount in recent months.
For Xbox, however, the upcoming decisions could prove particularly significant. Sharma's 100-day reset represents the first major strategic overhaul under her leadership since taking over in February. The success or failure of that effort may shape the future direction of one of the gaming industry's most recognisable brands.
As Microsoft closes out its fiscal year, attention will now turn to how deeply the restructuring cuts and whether the reset can reverse years of declining financial performance.