Microsoft's Xbox business is set to carry out a major reduction in force next month, with the cuts anticipated to occur shortly after the company’s fiscal year ends on June 30, according to reporting that cites people familiar with the matter.
In an internal email circulated to employees and seen by reporters, Xbox chief executive Asha Sharma said the unit's profitability has fallen to a 3% "accountability margin," the internal metric Microsoft uses to track profit margin. Sharma wrote that, "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." She added, "Going forward, this cannot continue."
Sources indicate the planned workforce reductions will be accompanied by substantial cuts to marketing budgets and reductions in several other areas across the Xbox organization. These actions are described as the first major structural changes under Sharma, who took the helm of Xbox in February.
Sharma also signaled additional operational shifts will follow, noting the need to "rebuild [the] platform infrastructure and rethink [the] portfolio in the weeks and months to come." The company is therefore preparing both immediate cost reductions and a longer-term examination of platform and product priorities.
Several performance issues are cited as context for the moves. Sales in Xbox’s hardware business have fallen sharply, the division has struggled to consistently deliver breakout game hits, and the growth of its subscription offering, Game Pass, has plateaued. Under mounting pressure from its parent company to improve margins, Xbox has already spent the past two years closing studios, cancelling projects and raising prices.
Xbox has released the majority of its software on competing consoles from Sony and Nintendo in recent years, a strategy that expanded the reach of titles such as Indiana Jones and Forza Horizon. In a separate development during a recent video presentation outlining upcoming titles, Sharma said some games will no longer be released on PlayStation or Switch. People familiar with Xbox strategy said a PlayStation 5 edition of the forthcoming Gears of War title had been in development and planned for release until that decision was reversed by Sharma.
The planned layoffs and budget cuts mark a pivot toward tighter cost controls and a reconfigured product strategy at Xbox. Executives are balancing near-term margin improvement with a need to restructure platform investments and the company’s broader content portfolio.
How these measures will affect product timelines, platform availability and future content partnerships will unfold as the unit implements both the immediate staffing changes and the subsequent platform rebuild Sharma described.