On Monday (6 July), Xbox CEO Asha Sharma sent an email to global employees, stating the company will be reducing its team by “approximately 3,200” this year, in its “most significant restructure… in history”.
This includes around 1,600 role eliminations on the day of the announcement itself.
Additionally, Ms Sharma said four studios will leave XBOX and move to a new management.
“I know this is painful. These changes will directly affect people who have poured their creativity into building XBOX…” she recognised, adding:
Today’s decisions do not reflect their talent or dedication.
This is an important email I sent today to all employees at XBOX:
Team,
We are beginning the most significant restructure in XBOX history. After careful consideration, I’ve made the difficult decision to reduce our team by approximately 3,200 throughout FY27. This will include…
— ASHA (@asha_shar) July 6, 2026
Ms Sharma said the reason for the restructure is because “business today is not healthy”.
The company is operating at margins three to 10 times lower than other platforms and businesses.
Despite its growth with Xbox Game Pass and other portfolios, the business did not grow at the expected pace and was weakening in spite of additional investment.
Microsoft’s chief people officer Amy Coleman further explained the job cuts in her message to employees, saying: “Our customers’ needs are shifting, the business models that serve them are shifting, and that means the work itself… has to transform too.”
“That means we will need to adjust resources and roles and shift how we operate so we can have the greatest impact for our customers.”
Since 2018, Microsoft has acquired four gaming studios to stay ahead of its competitors.
However, they will be spinning out these studios to reset their content portfolio.
Compulsion Games and Double Fine Productions will return to management and transition to independent studios in the future.
In a post on X, Double Fine Productions thanked Xbox “for seven great years” and the “[return of] ownership of [their] games”.
— Double Fine (@DoubleFine) July 6, 2026
Similarly, Compulsion Games expressed gratitude to Xbox, assuring fans that their priority is to support the team throughout the transition period.
An important update from Compulsion Games. pic.twitter.com/V4yRkpshuk
— Compulsion Games (@CompulsionGames) July 6, 2026
On the other hand, Ninja Theory and Undead Labs have entered an agreement to join new ownership with funding to complete and grow their games Senua and State of Decay 3.
Ms Sharma also announced that French video game developer Arkane Studios is making contact with its works council to review potential strategies.
In response to her X post, Arkane’s studio founder Raphaël Colantonio lightly teased, asking “how much” to buy back the studio.
Regarding Arkane… how much? I’m asking for a friend 😝
— Raphael Colantonio (@rafcolantonio) July 6, 2026
Xbox also announced its plans to make reductions across other units and shift investment to higher-priority projects.
It said these changes will affect Activision, Bethesda / ZeniMax, Blizzard, King, Mojang and Xbox Game Studios to different extents.
Ms Sharma also revealed that the company currently has as many as 14 layers of management in some parts despite its player base and playtime having declined.
As such, it plans to simplify its platform and reset how it operates, including reducing management layers to no more than five and as low as three where possible.
The mass layoffs sent shockwaves across the Internet.
Many netizens sympathised with the employees who were unfortunately laid off.
They expressed appreciation to Xbox for being transparent and honest in their statement, understanding that the tough decision needed to be made.
Some joked that this is Xbox’s chance to win over Sony’s PlayStation, in light of the news that it will stop producing physical media in a couple of years.
Source: X
Meanwhile, other netizens were furious, claiming that Xbox turned their backs against their own people.
Source: X
Ms Coleman assured that those laid off are not being replaced by AI, but acknowledged that “AI is changing how work gets done”.
“Our customers are navigating this same shift and they’re counting on us to help them through it,” she wrote. “We can’t do that well unless we’re doing it ourselves.”
For now, fans hope that Xbox will be able to tough out this challenging period and wish those affected the best in their future.
Ms Sharma ended her message expressing confidence for Xbox’s future: “History is full of companies that mistake longevity for inevitability. We will not be one of them.”
Also read: Sony to stop producing physical discs for video games in 2028
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Featured image adapted from Salvatore De Lellis and Gupta Sahil on Pexels.