Microsoft is preparing significant layoffs at its Xbox division, expected to land sometime after June 30 when the company's fiscal year closes. The cuts follow a stark internal email from new Xbox CEO Asha Sharma, who told employees that annual revenue had declined "nearly half a billion" dollars over the last five years, despite more than $20 million in investments across the Xbox brand, excluding Activision Blizzard King.
That number is striking on its own. But the full picture Sharma painted is even more concerning for anyone invested in the Xbox ecosystem.
What Sharma actually told employees
In an email published on June 10, Sharma didn't soften the message. She acknowledged that Xbox expanded its studio system aggressively to support multiple simultaneous strategies, covering subscription growth, game streaming, and hardware, and that the division ended up "overextended" as those strategies shifted.
"We expanded our studio system when we needed a pipeline of content to meet multiple strategies across subscription, streaming, and devices," Sharma wrote. "In the process, we found ourselves overextended as we executed on changing strategies in a landscape of more readily available content."
Here's the thing: this is the CEO of Xbox, in writing, telling her own staff that the business grew too fast in the wrong directions. That's not boilerplate restructuring language. That's an admission.
The hardware crisis nobody was talking about
Sharma also flagged a separate and arguably more immediate problem: a hardware component shortage driven largely by AI demand pulling resources away from consumer electronics.
The cost of console storage components had already doubled between last fall and when Sharma joined in February. Since then, those costs have doubled again. Looking ahead to the 2027 holiday season, Xbox is projecting component prices at more than 5 times what they were paying just two years ago.
For context, Xbox has been trying to keep hardware accessible as a gateway to Game Pass. If component costs keep climbing at this rate, that strategy gets a lot harder to execute without taking losses on every unit sold.
A studio roster built for a different strategy
Under former Xbox chief Phil Spencer, Microsoft went on one of the most aggressive studio acquisition runs in gaming history. Compulsion Games, Undead Labs, Ninja Theory, Bethesda, and eventually Activision Blizzard all came under the Xbox umbrella. The logic made sense at the time: Game Pass needed content, and lots of it.
But Sharma's email makes clear that the content pipeline strategy has shifted, and a studio roster built for one vision doesn't automatically fit another. Whether that means closures, mergers, or headcount reductions within existing studios isn't confirmed yet. What is confirmed is that the cuts are coming.
This isn't a complete surprise. In late May, Sharma reportedly warned staff that hard choices were ahead. The June 10 email moves that from vague warning to concrete timeline.
What the scale of this could look like
Microsoft's gaming division has already gone through several painful rounds of cuts over the past two years, including the closure of studios like Tango Gameworks and Arkane Austin in 2024. Those moves drew significant backlash from the gaming community, particularly given that Tango had just shipped Hi-Fi Rush to strong reception.
The upcoming round could be broader. Sharma's language about being "overextended" across the entire studio system suggests this isn't targeted at one or two underperforming teams. The fiscal year end on June 30 is the likely trigger point, with announcements expected shortly after.
If you're following upcoming Xbox releases, the Replaced release date and start times guide has everything you need for that launch. And for players keeping up with active Xbox titles, the Black Ops 7 and Warzone Season 3 release date and start times covers what's dropping next in one of Xbox's biggest franchises.
The next few weeks will determine how deep this goes. Keep an eye on any Xbox studio social accounts and Microsoft's official communications post-June 30. For more coverage across the gaming space, check out our gaming guides hub as the situation develops.
