Microsoft’s gaming division may be headed for its biggest reset in years. Nearly four months after Asha Sharma took charge as Xbox CEO and Matt Booty as the brand’s chief content officer, a new memo from the leadership duo suggests sweeping changes are in the works as the company looks to revive the Xbox brand.
Indian-origin Sharma, who succeeded Phil Spencer as CEO of Microsoft Gaming, has centred her strategy on three pillars: great games, the return of Xbox and the future of play. In their message to employees, Sharma and Booty signalled that the company is ready to turn the page and chart a new course for Microsoft’s gaming business.
Xbox layoffs coming soon?
As has typically been the trend, changing professional hierarchies have inevitably sparked layoff fears.
Although the Xbox CEO hasn’t yet officially drafted any plans to cut jobs, a Bloomberg report has fuelled conversations about “significant” staff reductions beginning in early July. The business site’s report further suggested that the cuts could severely hit marketing and other budgets. Gaming outlet Giant Bomb also reported that as many as 1,000 employees could be impacted by bad news, as Microsoft concludes its fiscal year.
The seemingly inevitable overhaul will only expand the sweeping wave of layoffs that Xbox’s parent company, Microsoft, has announced so far. Over a month ago, the Satya Nadella-led tech giant told its employees it would offer voluntary buyouts to longtime employees, according to the Financial Times. The report suggested that more than 8,000 employees would qualify.
Merely days ago, a DigiTimes Asia report signalled that Microsoft’s Azure cloud research and development divisions in Beijing and Shanghai, China, were eliminating between 200 and 400 employees. These numbers constituted roughly half of the Azure workforce in the country.
These developments come after Microsoft cut around 15,000 jobs through 2025, as CEO Satya Nadella told employees in a memo at the time that the company needed to “reimagine” its “mission for a new era” while assuming a pro-AI stance.
Could big Xbox investments in the past cost jobs?
Sharma and Booty, for their part, especially emphasised in the staff memo that having both “optimism and realism” was crucial to efficiently facilitate the business “reset.”
For the latter half, the Xbox leaders highlighted that some of the “realities” they need to navigate to achieve their end goals included a hardware component crisis. On top of that, they shed light on the company’s plummeting annual revenue (“nearly half a billion”) despite spending over $20 billion on ongoing investments in content, platform and hardware subsidies over the past five years.
In an email to employees this past week, Sharma said that the Xbox business had fallen to a 3% “accountability margin.”
“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,” she wrote, adding, “Going forward, this cannot continue.”
If recent layoff history has taught us anything, it’s that lofty investments have generally set a precedent for cost-cutting measures, which often result in job cuts. Meta and Oracle are only two of the many companies that have cited AI investments as the primary reason for layoffs. According to the most recent Challenger report, AI was responsible for an estimated 38,579 job cuts in May and 87,714 year-to-date.
Though once deemed a go-to, top-notch singular force in the video game industry, Xbox has faced significant hurdles in the recent past, with shrinking sales and wavering popularity and consistency. Sharma reignited that spark of interest in the beloved brand’s work this month when she took the stage at the 2026 Xbox Games Showcase to announce a stellar lineup of upcoming games and major titles that would be exclusive to Xbox consoles and PCs.
“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,” she similarly highlighted in the email to employees. “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.”
Amid the rapid expansion of AI data centres, Sharma is also anticipating rising digital storage costs to take a toll on the company. Underscoring how those expenses have grown since she took charge in February, the new Xbox CEO said they could rise five times more by the 2027 holiday season, when Microsoft’s next-generation Xbox console, identified as Project Helix, is also expected to launch.