Xbox warns of a ‘reset’ as it prepares for layoffs

Microsoft’s Xbox division will be hit with significant layoffs next month, according to people familiar with Microsoft’s plans.

The company has been preparing for the layoffs internally for weeks, with Xbox CEO Asha Sharma hinting about “making hard choices” last month. Sources suggest the cuts could even involve a studio closure, or changes to the Xbox studio lineup. In a recent Giant Bomb episode, rumors of 1,000 layoffs for Microsoft’s Xbox division were mentioned. Bloomberg also reported today that the cuts would be “major,” and involve budget cuts for marketing and other areas of Microsoft’s Xbox business.

Moments before Bloomberg’s report, Xbox CEO Asha Sharma and chief content officer Matt Booty sent a memo to Xbox staff, warning of an “Xbox reset” over the next 100 days. Sharma and Booty pointed to difficult challenges the business is facing. “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,” they wrote. “Going forward, this cannot continue.”

They also noted that “we are in a hardware component crisis,” saying that component costs for the 2027 holiday season are expected to be “over 5x the prices we paid only two years earlier. Memory costs have followed a broadly similar trajectory.” They said that “we need a new business model and partnerships for hardware as we remain committed to Helix.”

Sharma and Xbox strategy chief Matthew Ball have been hinting at “radically different” console business models this week, and the mention of “partnerships for hardware” certainly plays into the idea that other PC OEMs might be able to create Xbox-branded devices based on AMD’s new chips in the future.

But right now, Xbox’s “current platform infrastructure is not built for the battle ahead,” Sharma and Booty wrote, saying that “we’ll evolve and rebuild our stack and look at capabilities across all of XBOX and potential M&A to help us win in hardware, PC, mobile, and streaming.”

Sharma has already made some big decisions since taking over, including making Gears of War: E-Day and Clockwork Revolution Xbox console exclusives.