Microsoft eliminated 4,800 roles across the company Monday, with 1,600 cuts hitting the Xbox division in what new Xbox CEO Asha Sharma called "the most significant restructure in XBOX history." Another 1,600 Xbox employees will lose their jobs through fiscal year 2027, bringing total gaming reductions to roughly 20% of the workforce.
The cuts are paired with the dismantling of Xbox's aggressive studio acquisition strategy. Compulsion Games and Double Fine Productions will spin back into independent studios, taking their IP and catalogs.
Ninja Theory and Undead Labs have "entered terms to join new ownership" with funding to complete Senua and State of Decay 3. Arkane's management is beginning consultation with its Works Council over "potential strategic options."
Sharma's internal memo, published in full by The Verge, was blunt about why. "Our business today is not healthy," she wrote.
"We are operating at margins that are 3-10x lower than comparable platform and publishing businesses." The division lost 64 cents for every dollar invested in a typical year, she added.
The admission caps a decade of spending sprees. Since 2018, Xbox acquired Bethesda/ZeniMax for $7.5 billion and Activision Blizzard for $69 billion, swelling its studio portfolio while the number of games created each month across the industry now outpaces the last ten years combined.
Sharma acknowledged the strategy backfired. "We now find ourselves competing not only with the largest publishers, but also with smaller independent studios," she wrote. "It is neither possible nor desirable to own every great independent studio."
Platform bloat is another target. Platform teams are 40% larger than at the start of this console generation, even as player base and playtime declined.
Work passes through as many as 14 management layers in some parts of the company. Sharma is capping layers at five, cutting vendor spend by 50%, and promoting Helen Chiang, who built Xbox Live and led Mojang, to the newly created Chief Operating Officer role with end-to-end P&L authority. The broader Microsoft cuts, representing 2.1% of the global workforce of roughly 220,000, also hit the commercial sales organization.
HR chief Amy Coleman told employees the roles eliminated Monday are "not being replaced by AI", though she acknowledged automation is reshaping work. The layoffs come as Microsoft's stock fell 19% in June, its worst monthly performance since the dot-com era, and the company has shed roughly $1.2 trillion in market value over the past nine months amid record AI infrastructure spending.
Microsoft president Brad Smith told GeekWire the company has to adapt. "Microsoft can only be a strong employer if it has a successful business," he said. "We have to adapt to change."
Sharma, for her part, signaled the restructuring isn't over. "I recognize that a year-long restructuring creates additional challenges," she wrote.
"Unfortunately, it is not possible to make all the necessary changes in a single day." She committed that no publicly announced first-party games or projects are being cancelled.
The studio fire sale marks a sharp reversal for Xbox. Double Fine and Compulsion Games were acquired during the high-water mark of Xbox's studio-building push. Now both are being set free, with their IP, as Sharma resets a business she described as facing "the most severe hardware crisis in its history. "We will return to growth in 2027," she wrote.
