Microsoft’s Xbox division is reportedly preparing for three additional rounds of layoffs over the coming months as CEO Asha Sharma pushed ahead with a sweeping restructuring aimed at improving the gaming business’ financial performance.
According to a report by Fortune, Sharma is planning some more job cuts this month, followed by some additional rounds in November and January, extending a shake-up that has already resulted in thousands of layoffs across Microsoft’s gaming operations. In July this year, Asha Sharman announced plans to eliminate approximately 3,200 jobs during Microsoft's fiscal 2027, including around 1,600 positions that were cut immediately.
A further round of layoffs affecting roughly 260 employees followed in September. Microsoft has not publicly confirmed the latest reported plans or disclosed how many employees could be affected.
'Fundamental reset' of Xbox operations
The layoffs are part of what Asha Sharma has previously described as a fundamental reset of how Xbox operates and invests. In a message to employees earlier this year, she said the business was not healthy and acknowledged that Xbox was operating with margins significantly below those of comparable platform and publishing companies.
Sharma argued that years of heavy investment in content, hardware, platforms and studio acquisitions had failed to deliver the level of growth Microsoft expected. The restructuring is aimed at simplifying the organisation, reducing costs and focusing resources on projects with stronger commercial prospects.
Xbox job cuts: Employees demoralised
Spreading the cuts over several waves has left some employees demoralised, Fortune reports. Some staff feel they are working under a yearlong cloud, waiting to see whether their roles will be next.
Fortune also found at least one employee who was laid off and then offered a chance to stay. Some employees appreciated Sharma’s transparency, the report says. Sharma acknowledged the tough decisions but said she values people and does not intend to be transactional.
Studios and strategy under review
The reset has already resulted in major changes across Microsoft's gaming portfolio. Studios including Double Fine Productions and Compulsion Games have been allowed to regain independence, while other teams have undergone reviews, reorganisations or ownership discussions as Xbox streamlines its operations.The restructuring reflects growing pressure on Microsoft's gaming division to improve profitability amid rising industry costs and a challenging console market. While speculation has emerged over Xbox's long-term future within Microsoft, Sharma recently told media outlets that Xbox is not for sale, while Microsoft executives have publicly backed her leadership of the gaming business.
Why Xbox is being reset
Sharma, 38, took over in February from longtime Xbox head Phil Spencer.
She had no video game industry experience, having previously led product work on Microsoft’s AI Foundry platform. Fortune describes Xbox as a roughly $21 billion business with profit margins of about 3 percent, a fraction of what rivals earn and far below what Microsoft expects of its major units. Current Xbox consoles have sold only a little over a third as many units as the PlayStation 5, according to third-party estimates, and memory chip shortages are pushing up hardware costs.
Sharma told Fortune in July that Xbox had grown by making many bets and lost focus on its core business, saying the company “spread ourselves too thin.”
Questions about Xbox’s future
Several current and former staff members told Fortune they believe Xbox is being prepared for a possible sale, spinoff or other restructuring, amid heavy Microsoft spending on artificial intelligence. Judson Althoff, one of Microsoft’s most senior executives, rejected that idea, saying Microsoft would not have put Sharma in charge of a business it intends to sell. The next test comes with Microsoft’s quarterly earnings report this month, and Sharma has said she expects financial improvements to show in Microsoft’s fiscal 2027.