Microsoft's gaming division is facing its biggest restructuring in the company's history. New Xbox CEO Asha Sharma has announced plans to significantly reduce staff and change the approach to managing development studios amid financial difficulties.
Microsoft's gaming division is facing its biggest restructuring in the company's history. New Xbox CEO Asha Sharma has announced plans to significantly reduce staff and change the approach to managing development studios amid financial difficulties.
The company's CEO announced the drastic changes in an internal letter to the team, which she later published on her X (formerly Twitter) account. According to the document, the first wave of layoffs will begin this week and will cover 1,600 people. Another 1,600 positions will be cut by the end of fiscal year 2027.
Sharma explained this decision by economic issues and the inefficiency of the previous strategy. According to her, the platform's margins are now 3-10 times lower than those of competing companies, and the focus on Game Pass subscriptions and multi-platforms has not yielded the expected growth rates.
“Our business today is not healthy. We are entering the ninth generation of consoles with a smaller user base and a higher cost structure. And now the industry is facing the most severe hardware crisis in its history. We have to reboot Xbox,” the CEO said. She also added that on average the company was losing 64 cents on every dollar invested in independent studios.
As part of the restructuring, Xbox will change its studio portfolio. Compulsion Games and Double Fine Productions will become independent companies, retaining the rights to their games. At the same time, Ninja Theory and Undead Labs (a total of about 350 employees) will go to new owners, who will finance the completion of the development of Senua and State of Decay 3. As for the French division Arkane, the management is currently considering “potential strategic options.”
This is an important email I sent today to all employees at XBOX:
— ASHA (@asha_shar) July 6, 2026
Team,
We are beginning the most significant restructuring 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…
The cuts will also affect Activision, Bethesda, Blizzard, King, Mojang and Xbox Game Studios, but there are no plans to cancel projects that have already been announced. The largest studios in terms of audience, Mojang and King, will now report directly to the CEO.
In addition, Xbox management plans to significantly reduce bureaucracy, reducing the number of management levels from 14 to a maximum of 5. The company is also introducing the position of Chief Operating Officer (COO) for the first time. Helen Chiang, who previously led the development of Minecraft, will take over. She will be responsible for unifying content, hardware, platform and services under a single operating model.
Microsoft has been actively acquiring gaming companies in recent years, spending billions of dollars to acquire ZeniMax Media and Activision Blizzard. However, the corporation has subsequently faced the need to streamline its bloated assets: just earlier this year, the gaming division has already laid off about 1,900 employees and closed several well-known studios, including Arkane Austin and Tango Gameworks.
