Xbox Plans Significant Layoffs as New CEO Plans Overhaul

The layoffs, the exact scale of which is not yet clear, are expected shortly after the close of Microsoft's fiscal year on June 30, according to people familiar with the company's strategy, who asked not to be identified because they're not authorized to speak to the press. Xbox is also planning to significantly slash budgets for marketing and some other areas of the business, the people said.

A spokesperson for Xbox declined to comment.

Sharma is quickly making her mark on the unit since she became CEO of Xbox in February. She has spoken publicly about the organization's challenges, saying recently at the Bloomberg Tech conference that she planned on "resetting the business" which was "not in a healthy spot."

In an email to employees on Wednesday seen by Bloomberg and later posted on the Xbox blog, Sharma wrote that the business had plummeted to a 3% "accountability margin," the metric Microsoft uses to reflect profit margin.

"Excluding Activision Blizzard King, over the past five years, we have spent over $20 billion on ongoing investments in our content, platform and hardware subsidy, but our annual revenue has declined nearly half a billion during that time," she wrote. "Going forward, this cannot continue."

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Once a titan of the video-game industry, Xbox has struggled to grow over the past few years. Sales at its hardware business have plummeted, it has failed to consistently deliver hit games and the popularity of its subscription service, Game Pass, has plateaued. Under pressure from its parent company to boost margins, Xbox has spent the past two years shuttering studios, canceling games and raising prices.

Xbox has industry-defining franchises that have enormous potential and player demand, Sharma wrote, "but we have not adequately funded them to compete and win." At the same time, a reliable pipeline of exclusive games and new IP are critical to success, she added. "We need to reassess the balance between these and our investment priorities for the next 5 years."

Sharma said Xbox would need to rebuild its platform infrastructure and rethink its portfolio in the weeks and months to come. The company has expanded in order to increase its content pipeline but has found itself "over extended as we executed on changing strategies in a landscape of more readily available content."

In recent years, Xbox has released most of its software on rival consoles from Sony Group Corp.'s PlayStation and Nintendo Co., which helped games such as Indiana Jones and Forza Horizon reach far bigger audiences. But the move away from exclusivity may have damaged the appeal of Xbox hardware along the way.

Sharma is looking to reverse course. On Sunday, during a video presentation that showcased the company's slate of upcoming games, she announced that Gears of War: E-Day and Clockwork Revolution will not come to PlayStation or Switch. In subsequent interviews, she and her executive team said they would handle future titles on a case-by-case basis.

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A PlayStation 5 version of the new Gears of War game was in development and had been planned for release until Sharma changed tack, according to the people familiar with Xbox strategy. Retailers had been preparing to open pre-orders for the PlayStation 5 version, and many Xbox employees were surprised by the announcement.

Sharma and her team also pulled a Halo trailer that was due to appear at a PlayStation event last week, potentially damaging the relationship between the two companies, according to people familiar with the change of plans.

A return to exclusivity may excite diehard Xbox fans and improve prospects for the brand, but it also potentially means sacrificing a significant amount of revenue. The PlayStation 5 has sold more than 90 million units while analysts estimate that the Xbox has sold roughly one-third of that.

In the email to staff, Sharma reiterated that Xbox is facing a component crisis, and that by the 2027 holiday season she expects the company to be paying five times as much for storage and memory components as it did in 2024. As a result, she wrote, they will have to change their overall strategy for the next-gen console, code-named Helix.

"While the entire industry is facing a components crisis, we believe we have been impacted more greatly than many of our peers due to the choices we made over the last half decade," she wrote. "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."

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Sharma, who didn't mention job cuts in the employee memo, said at Bloomberg Tech that she isn't under the same fiscal pressures from Microsoft as her predecessor, Phil Spencer.

"My mandate is not a 30% accountability margin," she said. "It's not enterprise software margins. It's to be the number one gaming and entertainment company."

To get there, Sharma painted a picture of a company in need of dire change.

"For some of you, these realities will be surprising and even frustrating to discover," she wrote in the memo. "We won't succeed by hiding hard truths, nor will we succeed by doing the same thing and expecting different results."