Xbox is cutting 3,200 jobs, or about 20% of its workforce, by the end of fiscal 2027, with 1,600 of those pink slips landing on Monday. New CEO Asha Sharma framed the move in a company-wide memo as the most significant restructure in XBOX history.
In the note, Sharma wrote that the gaming business is “not healthy” and laid out a year-long reset that will also see four game studios leave Microsoft entirely. The cuts are part of a wider 4,800-person layoff round at Microsoft, with gaming absorbing the largest share of the headcount reduction. Sharma was named Xbox CEO in February, after leading Microsoft AI, and the memo marks her first major move at the top of the gaming division.
Inside the Memo
The letter to staff, the email Sharma posted in full, opens with a line designed to set the tone. “I know this is painful. These changes will directly affect people who have poured their creativity into building XBOX,” she wrote. The diagnosis followed in the next paragraph. The memo also notes that many of the affected employees joined Xbox through acquisitions, while others were recruited or sought out the company because they loved the industry and Xbox. The cuts are arriving into a console market Sharma has previously called the most severe hardware crisis in gaming history.
“Our business today is not healthy,” Sharma wrote. “We are operating at margins that are 3-10x lower than comparable platform and publishing businesses. We entered Gen 9 with a smaller install base and a higher cost structure. To grow, we bet on Game Pass, multi-platform, and a broader portfolio of content. While those businesses have created meaningful value, they did not grow at the pace we expected.” She closed the diagnosis with a five-word directive: “We must reset XBOX.”
The memo then sets out three reset tracks: a content portfolio overhaul, a platform simplification, and a new operating model. Each is paired with concrete numbers, including a target to cut management layers, a target to halve vendor spending, and a new executive role to pull the four content, hardware, platform, and services businesses under one profit-and-loss owner.
The Numbers Behind the Reset
Sharma’s memo runs on specific figures, and the gap between Xbox and its peers is the spine of her argument. The gaming division is operating at margins 3-10x lower than comparable platform and publishing businesses. In a typical year, the company lost 64 cents for every dollar it invested in studios. Platform teams are 40% larger than they were at the start of this console generation, even as player base and playtime have declined, she wrote.
On top of that, vendor spending will be cut by 50%, and management layers in some parts of the company, now as deep as fourteen, will shrink to no more than five and, where possible, three. Reductions will also reach into Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios, though none of the announced first-party games are being cancelled. The five numbers that frame the round:
- 3,200: total Xbox layoffs through fiscal 2027
- 1,600: cuts effective Monday
- 64 cents: lost for every $1 invested in studios in a typical year
- 3-10x: how much lower Xbox’s margins are than comparable businesses
- 4,800: total Microsoft jobs being cut in the same round
The Studios Leaving Xbox
The restructure is not only a headcount cut. Four game studios are leaving Xbox to operate under new management, with a fifth opening a formal consultation about its future in France. Each departing studio keeps its intellectual property and, in most cases, a runway for the next game in development. Sharma framed the moves as a recognition that Xbox “is not the best home for every type of studio,” and as a way to “help independent creators succeed by providing open development tools and audiences.” Each studio leaves with its IP, catalog, and funding to continue its next project.
The studios heading out:
- Compulsion Games: South of Midnight developer returns to its management team as an independent studio, keeping its IP and current projects.
- Double Fine Productions: Psychonauts developer also returns to its management team as an independent studio, with its catalog intact.
- Ninja Theory: Hellblade developer has entered terms to join new ownership with funding to finish Senua’s Saga.
- Undead Labs: State of Decay developer has entered terms to join new ownership with funding to complete State of Decay 3.
- Arkane: Dishonored and Deathloop developer in France is opening a legally required Works Council consultation to review strategic options, including a potential sale or spin-out. Marvel’s Blade has no public status update.
None of Xbox’s publicly announced first-party games are being cancelled, Sharma wrote. That list, per the full coverage of the memo, includes Fable, Gears of War: E-Day, Clockwork Revolution, Call of Duty: Modern Warfare 4, Minecraft Dungeons 2, and The Elder Scrolls 6. Reductions in headcount are also landing across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios, though “none of our first party publicly announced games or projects are being cancelled.”
A New Operating Model
The memo’s second track is structural. Sharma wrote that Xbox will reduce management layers to no more than five, and ideally three, from a current maximum of fourteen in some units. The aim is “a flatter organization that is built around makers, player-coaches, and directly responsible individuals,” she wrote. Platform teams are also 40% larger than they were at the start of this console generation, even as player base and playtime have declined, a contradiction Sharma said has “slowed decisions, blurred accountability, and made it harder to deliver for players.”
To enforce that flatness, Sharma is creating a new chief operating officer role with end-to-end profit-and-loss responsibility across content, hardware, platform, and services. Helen Chiang, a near-twenty-year Xbox veteran who previously led Mojang and the Minecraft franchise, takes that job and will report directly to Sharma. The change is the first time Xbox has had a COO with that scope, and is meant to pull studios that have operated independently under one operating model that can “make clear investment decisions, learn from our successes and failures, and hold ourselves accountable for results.”
Chiang’s promotion comes with a retirement. Dave McCarthy, the seventeen-year Xbox platform veteran who built much of the underlying infrastructure for Xbox Live, is leaving the company. Sharma thanked him in the memo and credited him with shaping “the platform that millions of players rely on every day.” The trade is a generational one: Chiang’s tenure spans the Minecraft era, while McCarthy’s spans the Xbox Live backbone. His retirement also trims one of the longest continuous leadership runs in the division.
Mojang and King, the studios behind Minecraft and Candy Crush, will now report directly to Sharma, rather than to a layer between them. Both are Xbox’s largest studios by monthly active players, Sharma wrote, and they bring the geographic, demographic, and franchise diversity the company has been missing. The arrangement removes a management layer between the CEO and the two studios that bring in the largest monthly player counts. According to the leadership reshuffle at Xbox, Sharma was named Xbox CEO in February after a stint leading Microsoft AI.
Microsoft’s Wider Layoff Wave
The Xbox cuts sit inside a bigger Microsoft restructuring. The company is laying off about 4,800 people across its operations, roughly 2.1% of its global workforce, with gaming absorbing the largest share, per the broader 4,800-person Microsoft layoff round.
This is the second major Microsoft layoff round in twelve months. In July 2025, the company cut about 9,000 roles across the entire business, cancelling Rare’s Everwild and shutting down Perfect Dark developer The Initiative, according to IGN. The new round is smaller in total headcount but more concentrated on the gaming business, where Sharma now controls the entire reset. The Information has separately reported, via Reuters, that Microsoft has not ruled out turning the Xbox brand into a wholly-owned subsidiary, a joint venture, or even a sale.
The 2027 Bet
Sharma’s memo ends with a forecast of her own. The gaming division, she wrote, will return to growth in 2027. “History is full of companies that mistake longevity for inevitability. We will not be one of them,” she added.
XBOX has many of the most beloved franchises in entertainment history, talented studios around the world, and we will return to growth in 2027.
Asha Sharma, CEO, Xbox, in a memo to staff on July 6, 2026.
The framing borrows from her boss. Microsoft CEO Satya Nadella has previously said that the era of subsidizing Xbox as a strategic bet on the living room is over, and that YouTube creators now make more money from Xbox games than Microsoft does, per GeekWire. The divestiture of four studios, the management-layer cuts, and the new COO role all sit inside that framing. Nadella has framed the last 25 years of Xbox as a strategic bet on the living room that Microsoft largely subsidized. Sharma’s memo commits to investing as much in Xbox this year as Microsoft ever has, even as the headcount drops by 20%.
“This year, we’ll invest as much in XBOX as we ever have,” Sharma wrote, “but we’ll invest with greater focus, greater discipline, and greater clarity, all in service of making XBOX where the world plays and creates.” She added: “I want XBOX to be one of the few companies that entertains more than a billion people each day and gives everyone the opportunity to create and connect.”
