Microsoft has announced a massive structural overhaul of its gaming division. In a blunt, wide-ranging internal memo, Xbox CEO Asha Sharma confirmed that the company is cutting 3,200 jobs—roughly 20% of the entire Xbox workforce—and spinning off or selling five of its development studios.
The move represents the most radical corporate restructuring in the 25-year history of the Xbox brand. Half of the job cuts (1,600 roles) take effect immediately, while the remainder will be phased out through the end of the 2027 fiscal year.
"Our Business is Not Healthy"
The internal messaging from leadership left no room for ambiguity. Sharma, who took the helm as Xbox CEO in February, detailed a stark financial reality behind the scenes. Despite spending $69 billion to acquire Activision Blizzard, the gaming division's profit margins have fallen dramatically behind its industry peers.
According to the memo, Xbox has been operating at margins 3 to 10 times lower than comparable platform holders and publishing businesses.
"In a typical year, [Xbox was] losing 64 cents for every dollar it invested in the business... History is full of companies that mistake longevity for inevitability. We will not be one of them."
— Asha Sharma, Xbox CEO
This financial reality is colliding directly with Microsoft’s aggressive broader corporate strategy. As the parent company redirects capital toward building out its AI data center infrastructure, non-core divisions are facing a steep wave of corporate austerity. (On the exact same day, Microsoft's Chief People Officer Amy Coleman confirmed an additional 4,800 layoffs across Microsoft's non-gaming corporate sales units).
Unwinding the Empire: The Studio Divestments
A major pillar of this "reset" is the reversal of Microsoft’s studio-buying spree. Rather than continuing to subsidize independent teams under the Xbox Game Studios umbrella, Microsoft is spinning off or selling five notable subsidiaries:
| Studio | Status / Future Plan | Notable IP / Projects |
| Double Fine Productions | Returning to independent ownership under founder Tim Schafer | Psychonauts |
| Compulsion Games | Returning to independent ownership under founder Guillaume Provost | South of Midnight |
| Ninja Theory | Sold to unidentified new ownership | Senua's Saga: Hellblade II |
| Undead Labs | Sold to unidentified new ownership | State of Decay 3 |
| Arkane Studios (Lyon) | Entering formal consultation to review future options | Marvel's Blade, Deathloop |
Note: For the independent transitions and sales, studios will retain their intellectual properties, existing game catalogs, and commitments to complete their current active projects.
Cutting Management Layers, Not Upcoming Games
For gamers worried about canceled projects, Sharma clarified that no publicly announced first-party games are being axed as part of this downsizing. However, the internal restructuring will bring significant administrative changes:
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Collapsing the Org Chart: Sharma noted that some parts of the division suffered from excessive corporate bloat, with work passing through as many as 14 layers of management. Xbox will now enforce a strict cap of no more than 5 layers.
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Centralizing Leadership: Key massive studios like Mojang (Minecraft) and King (Candy Crush) will now report directly to the CEO.
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A Leaner Budget: Xbox is aggressively slashing its external vendor and contractor spending by 50% across the board.
While the changes bring immediate pain to thousands of industry workers, Microsoft is banking on this leaner, flatter structure to pull Xbox back into a profitable growth cycle by 2027.
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