Microsoft’s Xbox division is heading into July with a layoff plan, a marketing budget cut, and possibly a studio closure on the table, according to Bloomberg, as CEO Asha Sharma uses her first 100 days to set up what she is calling a full business “reset.” The cuts, expected shortly after Microsoft’s fiscal year ends June 30, would be the first major restructuring under Sharma, who took over from longtime Xbox chief Phil Spencer in February. The Verge, citing people familiar with the plans, separately reported the cuts could extend to closing or reshaping one of Xbox’s owned studios.The scale of the layoffs has not been confirmed. Giant Bomb has floated a figure of around 1,000, though neither Bloomberg nor Microsoft has corroborated it. Microsoft declined to comment.Shortly before Bloomberg’s report went live, Sharma and Xbox chief content officer Matt Booty sent a memo to staff laying out what they called five “realities” the business has to navigate. The note, later published on Xbox Wire, is unusually blunt for a company-wide message.
A 3% margin, $20 billion spent, and revenue that keeps slipping
Xbox will close its fiscal year at roughly a 3% “accountability margin”—Microsoft’s internal version of profit margin—down year-on-year. Excluding the Activision Blizzard King acquisition, Sharma wrote, Xbox has spent more than $20 billion on content, platform, and hardware subsidies over the past five years, even as annual revenue slipped nearly half a billion dollars over the same stretch.“Going forward, this cannot continue,” she and Booty told staff. Microsoft’s most recent quarterly filing tells a similar story: gaming revenue fell 7% to $5.3 billion for the quarter ending March 31, with Xbox hardware down 33%.
Hardware costs spike 5x, and Gears of War quietly loses its PS5 build
The memo also flags a “hardware component crisis.” Storage component prices, Sharma wrote, were already 2x higher than fall 2025 when she joined in February, have doubled again since, and are expected to hit 5x by the 2027 holiday season. Memory has tracked a similar curve. Xbox, she said, currently cannot make as many consoles as players want to buy, and a new business model and hardware partnerships are needed. Project Helix, however, stays on the roadmap.Sharma has also greenlit the call to make Gears of War: E-Day and Clockwork Revolution console exclusives—a reversal of the multiplatform push under Spencer. Bloomberg reports a PS5 build of E-Day was already in development before being scrapped, and that a Halo: Campaign Evolved trailer was pulled from a recent PlayStation State of Play showcase.Whatever shape the reset takes in July, the message to staff is that the old playbook is closed.
Full memo to Xbox employees, by CEO Asha Sharma and chief content officer Matt Booty
Next 100 Days: XBOX Reset Asha and Matt—Published June 10, 2026 This message was just sent to Team XBOX employees globally.Team,Over the first 100 days together, we have started to revive XBOX.Our platform teams have already shipped more updates in the last 100 days than during the prior year combined. We now have more active partners on XBOX than ever before. Our Game Pass team set to work fixing our offering and after 8+ months of decline, our service has started to grow again. And through Player Voice, we have a 24/7 channel to hear directly from players, creators, and developers.With the XBOX Games Showcase and the return of FanFest, we brought together hundreds of millions of fans globally. We reintroduced exclusives with Gears of War: E-Day in 2026 and Clockwork Revolution in 2027. Players can continue to expect signature exclusives from us every year. In parallel, Playground Games reminded us that established franchises can achieve incredible new highs.These results are early, but they demonstrate what is possible when we move faster, stay close to our community, and align behind a shared vision. 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.Now we start the next 100 days. It is important to have both optimism and realism as we work to reset the business.Here are the realities that we need to navigate:#1: Over 1 billion players choose to play XBOX and our games each year, for a total of 72 billion hours across Console, PC, Mobile, and Streaming (excluding much of China and a few other properties). Our franchises are also among the largest and most beloved globally and are now breaking records in TV and film. Going forward, our competition is attention. There are more great games, TV series, franchises, creators, content formats, apps, etc., than ever before.#2: We will end this fiscal year at about a 3% accountability margin, down year-over-year. 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.#3: 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. Memory costs have followed a broadly similar trajectory. 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.#4: We expanded our studio system when we needed a pipeline of content to meet multiple strategies across subscription, streaming, and devices. In the process, we have found ourselves over extended as we executed on changing strategies in a landscape of more readily available content. We are the fortunate stewards of industry-defining franchises that have enormous potential and player demand, but we have not adequately funded them to compete and win. At the same time, as we saw this past weekend at Showcase, a reliable pipeline of first- and third-party exclusives and new IP are critical to our success. We need to reassess the balance between these and our investment priorities for the next 5 years.#5: Our current platform infrastructure is not built for the battle ahead. Our systems are overly complex, spanning hundreds of dependencies, which hinders our ability to move fast. We’ve become too reliant on vendors to operate our systems and must become more self-reliant as an engineering culture to build for the future. We must increase the value we ship to players while decreasing the time it takes to do so. 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.For some of you, these realities will be surprising and even frustrating to discover. We won’t succeed by hiding hard truths, nor will we succeed by doing the same thing and expecting different results. Like the ‘everyday wins’ mentality from the first 100 days, we will sprint to make progress against hardware, content, experience, and services together.XBOX is one of the few places where people come not just to play, but to connect with others to create memories. With console at the center of how our showcase experiences are defined, Windows as one of the largest gaming platforms in the world, and incredible games under our roof as one of the largest publishers in the world, we have the foundation in place.Let’s reset for a stronger XBOX and build the #1 gaming and entertainment company.Asha and Matt
