Xbox Layoffs Are Coming in July as New CEO Declares a Division-Wide Reset

The memo that started it

On June 10, Xbox CEO Asha Sharma and Chief Content Officer Matt Booty sent a company-wide memo to Xbox employees titled 'Next 100 Days: XBOX Reset.' It was published publicly on Xbox Wire the same day. The timing was not a coincidence - Bloomberg had just reported that Microsoft's gaming division is planning significant xbox layoffs to begin in July, shortly after the close of Microsoft's fiscal year on June 30.

The memo is one of the most candid assessments of strategic failure from a major platform holder in recent memory. Sharma, who replaced longtime Xbox chief Phil Spencer in February 2026, did not soften the numbers: excluding the $68.7 billion Activision Blizzard King acquisition, Xbox spent more than $20 billion on content, platform, and hardware subsidies over five years while annual revenue declined by nearly $500 million in the same period. The division's profit margin currently sits at roughly 3%. 'Going forward, this cannot continue,' the memo stated.

Five realities, none of them comfortable

The second half of the memo shifts into what Sharma and Booty called five 'realities' Xbox needs to navigate. The financial picture is the most damaging: a 3% accountability margin - Microsoft's internal profitability metric - sitting far below the 40%+ margins other Microsoft divisions operate at. For context, Bloomberg's Jason Schreier noted that a 3% margin makes it difficult to justify continued large-scale investment inside a company like Microsoft, regardless of how many games ship.

Hardware is where the memo gets most specific. When Sharma joined in February, Xbox was reportedly paying more than twice as much for console storage components as it had the previous fall - a hardware cost problem that has become central to how leadership is rethinking the console model entirely. The memo signals that Xbox 'needs a new business model and partnerships for hardware' to make its future console, Project Helix, viable. That language opens the door to Xbox-branded devices built by PC OEMs rather than manufactured entirely by Microsoft.

The studio system also comes under scrutiny. The memo acknowledges Xbox expanded its studio roster to support multiple simultaneous strategies - subscription, streaming, hardware, mobile, and PC - and that the resulting content pipeline was overextended. Sources familiar with the plans told The Verge that the microsoft xbox layoffs could include a studio closure or changes to the existing studio lineup.

What actually changed under Sharma

The first half of the memo is not all bad. Sharma's first 100 days produced more platform updates than the prior year combined, according to the memo. Game Pass, which had been declining for more than eight months, has started growing again after Microsoft cut Game Pass pricing by 23% in April 2026 and ended the practice of releasing future Call of Duty titles on the subscription service on day one - a direct reversal of the all-in subscription strategy championed under Phil Spencer.

At the Xbox Games Showcase held days before the memo dropped, Sharma doubled down on console exclusivity, confirming that Gears of War: E-Day and Clockwork Revolution will be Xbox exclusives. Bloomberg separately reported that a PS5 version of the new Gears game had been in development and was canceled before the announcement. The shift toward exclusives marks a meaningful departure from the multiplatform pivot that defined the Spencer era.

Sharma is a product executive by background - she previously served as COO of Instacart and ran Microsoft's CoreAI product organization before taking the Xbox role. Her approach so far has been data-driven and direct, and the public release of a memo this candid about financial underperformance reflects a style that is deliberately different from the Xbox leadership that preceded her.

A pattern of microsoft gaming layoffs

The July cuts will not arrive in a vacuum. Xbox cut 650 employees in June 2025, which itself followed a broader Microsoft reduction of 9,100 positions that included 200 cuts at Candy Crush maker King, the cancellation of the Perfect Dark reboot, the closure of The Initiative studio, and a canceled MMORPG at ZeniMax. Before that came a separate wave of nearly 2,000 gaming cuts in early 2024. Xbox restructuring has become a near-annual occurrence since the Activision Blizzard acquisition closed.

Across the wider industry, more than 117,000 tech workers have been laid off in 2026 through June, according to tracking data cited by multiple outlets. Microsoft shares closed at $397.36 on June 11, down roughly 18% year-to-date. The scale of the July xbox layoffs has not been confirmed - Microsoft declined to comment - but Bloomberg and The Verge both describe the cuts as significant, potentially numbering in the thousands.

What to watch heading into July

• Formal layoff announcement expected after June 30, when Microsoft closes fiscal year 2026.
• Studio closures: sources tell The Verge the cuts could include shutting at least one studio or restructuring the existing lineup.
• Project Helix: Sharma's hardware partnership language suggests the next Xbox console may not be built the traditional way - watch for OEM announcements.
• Game Pass direction: with Call of Duty off day-one inclusion, the value proposition of Game Pass is changing - Microsoft will need to signal what anchors the service going forward.
• Marketing budget cuts are confirmed as part of the reset, which could affect game launch visibility through the back half of 2026.

Sources