Xbox is preparing for significant layoffs and a sweeping restructuring under CEO Asha Sharma’s “Xbox Reset” plan. After spending over $20 billion with declining revenue, Microsoft’s gaming division faces budget cuts, a hardware crisis, and a fundamental business overhaul starting July 2026.
Microsoft’s Xbox division is preparing for major layoffs in July 2026 as part of a sweeping restructuring plan led by CEO Asha Sharma. Bloomberg reported on June 10, 2026, that the cuts will be announced shortly after Microsoft’s fiscal year ends on June 30, with marketing budgets and other operational areas also facing significant reductions. The Verge reported that approximately 1,000 jobs may be at stake and that a studio closure could be part of the changes.
What Did the “Xbox Reset” Memo Actually Say?
Hours after Bloomberg broke the story, Xbox published the full internal memo on Xbox Wire under the title “Next 100 Days: Xbox Reset.” Written by CEO Asha Sharma and Chief Content Officer Matt Booty, the message was addressed to every Xbox employee worldwide. It outlined five key realities the company must confront, beginning with a staggering financial admission.
“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,” the memo stated. “Going forward, this cannot continue.” The memo also revealed that Xbox expects to close the current fiscal year at roughly a 3% accountability margin, down year-over-year.
Three Straight Quarters of Revenue Decline
The financial picture the memo describes aligns with Microsoft’s recent quarterly earnings. In the FY2026 Q3 results reported on April 29, 2026, Xbox hardware revenue fell 33%, marking the second consecutive quarter with a decline above 30%. Xbox content and services revenue dropped 5%, continuing a three-quarter streak of overall gaming revenue decline. While Microsoft as a whole posted $82.9 billion in revenue (up 18% year-over-year), the gaming division has been a persistent weak spot, dragging down the More Personal Computing segment.
A Hardware Component Crisis Unlike Any Before
Perhaps the most alarming section of the memo dealt with hardware costs. Sharma revealed that when she took over as CEO in February 2026, the price Xbox paid for console storage components was already over 2x what it had been the previous autumn. Those costs have since doubled again. Planning for the 2027 holiday season, Xbox expects another significant increase, pushing component prices to over 5x what they were just two years earlier. Memory costs have followed a broadly similar trajectory.
The memo acknowledged that while the entire industry faces a components crisis, Xbox has been hit harder than many competitors “due to the choices we made over the last half decade.” Crucially, Sharma admitted that Xbox is currently unable to manufacture as many consoles as players want to buy.
Is Xbox Abandoning Console Hardware?
No, but the approach is changing dramatically. The memo confirmed Xbox remains committed to its “Helix” hardware codename, widely understood to be the next-generation Xbox console. However, it stated that Xbox needs “a new business model and partnerships for hardware” to make it viable. This language suggests future Xbox consoles may involve manufacturing partnerships with third-party companies rather than the traditional first-party-only production model. Reports from April 2026 already indicated that the global memory shortage could delay Helix’s launch, with Sharma signalling that Microsoft is waiting for supply chain stabilisation before confirming dates.
Studios Are “Over Extended” and Investment Priorities Will Shift
The memo directly addressed Xbox’s sprawling studio portfolio. Sharma and Booty wrote that Xbox expanded its studio system to support “multiple strategies across subscription, streaming, and devices” but has since found itself “over extended.” They acknowledged that Xbox stewards some of the industry’s most defining franchises but “have not adequately funded them to compete and win.”
This is a particularly significant statement given what happened in July 2025, when Microsoft cut roughly 9,000 jobs across its gaming division, shut down The Initiative studio, and cancelled high-profile projects including Perfect Dark and Everwild. The memo signals a similar reckoning may be approaching, with The Verge reporting that a studio closure or changes to the Xbox studio lineup could be part of the July cuts.
Xbox leadership said they will “reassess the balance” between supporting existing franchises and investing in new IP, evaluating priorities for the next five years. The recent Xbox Games Showcase 2026, which confirmed Gears of War: E-Day as an Xbox console exclusive launching October 6, 2026, and Clockwork Revolution as an exclusive for 2027, appears to be the first visible result of this refocused strategy.
Platform Infrastructure Being Rebuilt from the Ground Up
The fifth and final reality outlined in the memo concerns Xbox’s technology stack. “Our current platform infrastructure is not built for the battle ahead,” Sharma and Booty wrote. They described systems that are “overly complex, spanning hundreds of dependencies” and said Xbox has become “too reliant on vendors” to operate those systems. The plan is to rebuild Xbox’s software stack, develop capabilities across hardware, PC, mobile, and streaming, and potentially pursue mergers and acquisitions to accelerate the transformation.
What Happened in the First 100 Days Under Sharma?
Asha Sharma was named Executive Vice President and CEO of Microsoft Gaming on February 20, 2026, replacing the retiring Phil Spencer. A former President of Microsoft’s CoreAI product division, Sharma’s appointment was seen as a surprise, passing over Spencer’s long-time deputy Sarah Bond, who chose to leave Microsoft. Sharma also sits on the boards of Home Depot and Coupang, the South Korean e-commerce giant.
In her first 100 days, Sharma oversaw several notable moves. Xbox Game Pass Ultimate’s price was cut from $29.99 to $22.99 per month in April 2026, though new Call of Duty games will no longer be added to Game Pass on day one. The Xbox Games Showcase 2026 reintroduced console exclusives and announced major titles. The Player Voice feedback channel was launched, and platform update velocity reportedly increased.
When Sharma took over, Matt Booty publicly assured employees that no organisational restructuring was planned and studio structures would remain intact. Four months later, that assurance has been overtaken by the “Xbox Reset” memo’s far more sobering message.
How Does This Compare to the Rest of the Industry?
Xbox’s restructuring is part of a broader pattern hitting the entire games industry. In January 2026, Ubisoft closed its Halifax and Stockholm studios, cancelled six game projects including the long-troubled Prince of Persia: The Sands of Time remake, and launched a company-wide reorganisation affecting its 17,000 employees. Sony shut down Bluepoint Games. Over the past two years, major layoffs have struck Epic (860 jobs), Unity (1,800), PlayStation (900), and Riot (530), among many others.
What makes Xbox’s situation distinct is the sheer scale of investment that has failed to generate returns. Spending $20 billion over five years while seeing revenue decline by half a billion is an extraordinary admission, especially published on an official Xbox website. As Push Square noted, this financial disclosure “perhaps helps explain the sudden departure of ex-leaders Phil Spencer and Sarah Bond.”
What Does This Mean for Players Right Now?
In the short term, Xbox’s announced game lineup appears safe. Gears of War: E-Day (October 6, 2026), Halo: Campaign Evolved (July 28, 2026), Doom: The Dark Ages Revelations (July 7, 2026), and other Showcase titles are proceeding as planned. Game Pass is growing again and is now cheaper than it was six months ago. The return of console exclusives signals a clearer identity for the platform.
However, the medium-term outlook carries real uncertainty. If a studio closure is part of the July cuts, more game cancellations could follow. The Helix console’s timeline remains unclear amid the component crisis. And the “five-year investment reassessment” could mean that some franchises or projects currently in development may not survive the review.
For Xbox employees, the weeks ahead will be deeply stressful. Bloomberg’s Jason Schreier reported that while the exact headcount is unknown, the layoffs are expected to be significant. Marketing teams appear especially vulnerable, and the broader operational cuts suggest that no part of Xbox’s business is immune.
The Bigger Picture: Reset or Retreat?
Sharma’s memo walks a deliberate line between crisis communication and rallying cry. It acknowledges deep structural problems while insisting that Xbox’s foundation (over 1 billion players annually, 72 billion hours of play, major franchises, and a presence across console, PC, mobile, and streaming) remains strong. The memo ends with a call to “reset for a stronger Xbox and build the #1 gaming and entertainment company.”
Whether this reset delivers on that ambition or marks another chapter of contraction will depend on execution over the coming months and years. What is clear is that the status quo at Xbox is over, and the cost of that change will first be felt by the people who built the platform to where it is today.
