Xbox Reportedly Planning Layoffs Next Month as CEO Asha Sharma Details Need to 'Reset' Business

Microsoft is reportedly planning significant layoffs at its Gaming devision just as new Xbox CEO Asha Sharma plans a “reset” for the company over the next 100 days. The Xbox boss laid out the challenges facing the business on Wednesday, calling for an overhaul across content, services, and hardware in order to build the “number 1 gaming and entertainment company.” But the path to that reportedly leads through a major round of layoffs at the company.

Hours after Sharma shared a memo sent to Xbox staff detailing the need to “reset the business” over the next 100 days, Bloomberg reported that the company was planning “major” job cuts next month, along with cutting budgets across certain areas of the business, including marketing.

It's unclear how many members of staff will be impacted by the planned layoffs, which are expected after June 30, the close of Microsoft's fiscal year, the report said, citing people familiar with the company's plans.

The Xbox parent is also reportedly planning to cut marketing budgets “significantly,” along with budgets across other parts of the business.

The reported layoffs would come as part of Xbox's larger strategy to turn around its ailing business under the new leadership of Sharma, who took over as CEO in February and has since made major calls to steady the ship. The Xbox boss slashed prices of Game Pass membership to stop losing paying subscribers; she spearheaded new branding for the platform and killed Microsoft's Gaming Copilot service; and she announced the return of console exclusives at the Xbox Games Showcase this weekend.

'This Cannot Continue,' Says Xbox Boss

These changes, however, are only the beginning. In her memo, where she did not mention impending layoffs, Sharma detailed a grim reality for the Xbox business — most crucially, the platform's declining revenue. The Xbox chief said the Gaming division was at 3 percent “accountability margin” — Microsoft's internal metric for profitability of its divisions.

The number stands in stark contrast to Microsoft's enterprise software divisions, which reportedly target 30 percent accountability margin. “My mandate is not 30 percent accountability margins, it's not enterprise software margins, it's to be the number one gaming and entertainment company, and what's what we're going to go do.” Sharma said in a recent Bloomberg interview.

And while 30 percent might not be the mandate, 3 percent is clearly not acceptable, as Sharma's memo outlined.

“We will end this fiscal year at about a 3 percent accountability margin, down year-over-year,” she told Xbox staff. “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.”

Asha Sharma appeared at the Xbox Games Showcase to announce the return of exclusive games
Photo Credit: Microsoft

Xbox Impacted Severely by Hardware Crisis

Sharma also detailed the challenges facing Xbox and the wider industry on the hardware front amidst severe memory and storage shortages and resulting component price hikes. In recent comments, the Xbox boss has said the company needed to change its hardware strategy beginning with Project Helix, the next-gen Xbox console.

“We are in a hardware component crisis. When I joined as CEO in February, the price we paid for console storage components was over 2x as high as we paid last fall. These costs have since doubled again. And as we plan for the 2027 holiday season, we expect another significant increase, taking us over 5x the prices we paid only two years earlier,” Sharma said in her memo.

“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. 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,” she added.

Sharma's comment suggests Xbox is open to tying up with third-party OEMs to make Xbox-branded hardware, much like the company's approach with the Asus ROG Ally handhelds. Sharma has previously said that most users weren't willing to spend in excess of a $1,000 for a new console generation, and so Xbox needed to be flexible in its hardware offerings.

Xbox Studios 'Overextended', Underfunded

The Xbox CEO also said that the company's game studios were “over extended” and admitted that its biggest franchises had not been “adequately funded” to compete with rivals. Xbox needed to reassess the balance of its content offerings and prioritise investment over the next five years, Sharma added.

One of Sharma's biggest decisions at Xbox has been the return of exclusive games on Xbox consoles, which was announced at Xbox Games Showcase on June 7, where Gears of War: E-Day and Clockwork Revolution were confirmed as console exclusives for the platform.

According to the Bloomberg report, a PS5 version of Gears of War: E-Day was in development before Sharma decided otherwise. Additionally, she also reportedly pulled a trailer for Halo: Campaign Evolved planned for Sony's recent State of Play broadcast. The move could potentially damage the relationship between Sony and Microsoft, the report said.

Finally, Sharma said that Xbox had become “too reliant” on vendors to operate its systems and must be self-reliant in the future. “Going forward, 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,” she said.