Xbox Is Reportedly Preparing Major Layoffs as Microsoft Begins a 100-Day Reset

Microsoft is reportedly preparing another major round of layoffs across its Xbox division as the company confronts falling revenue, sharply rising hardware costs and questions over the future of its sprawling studio network.

The cuts are expected to take place in July, shortly after Microsoft's current fiscal year ends on June 30, according to a Bloomberg report citied by Reuters. The exact number of affected employees has not been confirmed, although significant reductions are reportedly being considered across marketing and other parts of the Xbox business.

The Verge separately reports that the restructuring could potentially involve a studio closure or changes to Microsoft's Xbox studio lineup. Rumours of as many as 1,000 job losses have also circulated, although Microsoft has not officially confirmed the scale of the planned cuts.

Xbox says its current business model cannot continue

The reports arrived shortly before Xbox CEO Asha Sharma and chief content officer Matt Booty published a memo sent to employees globally, titled Next 100 Days: XBOX Reset.

The memo does not directly mention layoffs. However, it sets out the financial and operational pressures facing the business in unusually clear terms.

Microsoft says Xbox will end the fiscal year with an "accountability margin" of around 3%, down year over year. Excluding Activision Blizzard King, the company says it has spent more than $20 billion over the past five years on content, its platform and hardware subsidies. Over the same period, annual revenue has declined by nearly $500 million.

"Going forward, this cannot continue," Sharma and Booty wrote.

Rising component costs are putting pressure on the next Xbox console

Hardware is one of the biggest issues facing Microsoft as it develops its next-gen Xbox platform, codenamed Project Helix.

According to the memo, the cost of storage components used in Xbox consoles had already more than doubled by the time Sharma became CEO in February. Those costs have since doubled again. Microsoft expects further increases ahead of the 2027 holiday season, potentially pushing component prices to more than five times the levels the company paid only two years earlier. Memory prices are following a similar territory.

Microsoft says it is currently unable to manufacture as many consoles as customers want to buy. The company now believes it needs a new hardware business model and additional partnerships while continuing development of Project Helix.

The remarks add further weight to recent suggestions that Microsoft could work more closely with PC manufacturers on future Xbox-branded devices, rather than relying exclusively on a traditional console mode.

Microsoft says Xbox has become overextended

Microsoft is also reassessing the size and structure of its first-party studio network.

The company expanded aggressively over the past several years as it pursued multiple strategies across subscriptions, cloud streaming, consoles, PC and mobile. However, Sharma and Booty acknowledged that Xbox had become “over extended” as its priorities shifted.

The memo argues that Microsoft has not invested enough in some of the major franchises under its control, despite owning one of the largest collections of gaming properties in the industry. Xbox now plans to reassess the balance between new intellectual property, established franchises, third-party partnerships and exclusives over the next five years.

The company has already signalled a renewed focus on exclusives. Microsoft confirmed during its recent Xbox Games Showcase that Gears of War: E-Day will be an Xbox console exclusive in 2026, followed by Clockwork Revolution in 2027.

Xbox wants to rebuild its platform and reconsider its priorities

Microsoft says its internal Xbox platform infrastructure also needs a significant overhaul.

According to the company, the current system has become overly complex, with hundreds of dependencies slowing down development. Xbox plans to rebuild its technology stack, reduce its reliance on external vendors and consider additional capabilities or acquisitions that could help it compete across console hardware, PC, mobile and streaming.

There are some early signs of improvement. Microsoft says Game Pass has started growing again after more than eight months of decline, while the Xbox platform team has shipped more updates during Sharma’s first 100 days than it did during the previous year combined.

However, the reported layoffs underline the scale of the restructuring still ahead. Microsoft is not abandoning Xbox consoles or its gaming business, but the company appears to be preparing for substantial changes to how Xbox hardware, studios and services operate.

FAQ

Is Microsoft planning more Xbox layoffs?

Microsoft has not formally announced layoffs, but Bloomberg, Reuters and The Verge report that significant cuts are being prepared across the Xbox division. The layoffs are expected to take place in July 2026, shortly after Microsoft’s fiscal year ends on June 30.

How many Xbox employees could lose their jobs?

The exact number has not been confirmed. Rumours of approximately 1,000 job losses have circulated, but Microsoft has not publicly verified that figure.

Is Microsoft cancelling the next Xbox console?

No. Microsoft says it remains committed to Project Helix, its next-generation Xbox hardware platform. However, rapidly increasing memory and storage costs have pushed the company to explore a new business model and additional hardware partnerships.

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