Xbox CEO warns of 'reset' as Microsoft prepares significant layoffs for July

Microsoft's Xbox division is preparing significant layoffs to begin in July, shortly after the company's fiscal year closes on June 30, according to people familiar with the plans who spoke to Bloomberg. The exact scale of the cuts remains unclear, though a recent Giant Bomb episode mentioned rumors of 1,000 layoffs for the Xbox division. Sources told The Verge the cuts could involve a studio closure or changes to the Xbox studio lineup.

The memo

Xbox CEO Asha Sharma and Chief Content Officer Matt Booty published a memo to staff on Wednesday outlining what they called an 'Xbox reset' over the next 100 days. The note, posted on Xbox Wire, did not explicitly announce layoffs but detailed several 'surprising and even frustrating' realities facing the business.

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. Going forward, this cannot continue.

Sharma separately told employees in an email reviewed by Bloomberg that the Xbox accountability margin — Microsoft's internal term for profit margin — has shrunk to 3%.

Hardware crisis and attention competition

The memo also addressed what Sharma and Booty described as a hardware component crisis. They wrote that component costs for the 2027 holiday season are expected to be 'over 5x the prices we paid only two years earlier,' with memory costs following a broadly similar trajectory. The executives said Xbox is currently unable to make as many consoles as players want to buy and needs 'a new business model and partnerships for hardware' while remaining committed to Project Helix, the codename for the next Xbox console.

Going forward, our competition is attention. There are more great games, TV series, franchises, creators, content formats, apps, etc., than ever before.

Recent bright spots

Sharma's first 100 days have produced some positive signals. The platform teams shipped more updates in that period than during the prior year combined, and Game Pass returned to growth after more than eight months of decline. The Xbox Games Showcase 2026 reintroduced exclusives with Gears of War: E-Day slated for 2026 and Clockwork Revolution for 2027. Sharma also offered candid remarks about console pricing, saying the industry has 'reached a point where it will be hard to imagine that mass audiences can afford thousands of dollars to spend on a console generation.'

We have made mistakes, and will continue to make them, but what matters is that we listen, learn, and adjust the course where needed. Remember, our fans are rooting for us.

A pattern of cuts

The looming layoffs follow previous reductions across Microsoft's gaming division. In July 2025, Xbox was the main division affected when Microsoft cut 9,000 jobs company-wide. Thousands more gaming positions were eliminated in 2024. Sharma and Xbox strategy chief Matthew Ball have been hinting at 'radically different' console business models this week, and the mention of hardware partnerships in the memo suggests other PC manufacturers might eventually produce Xbox-branded devices built on AMD's new chips.