Just a few days after the Xbox Showcase, the new head, Asha Sharma, addressed the workforce. Microsoft’s gaming division is currently struggling, so widespread layoffs are expected in July.
The gaming industry is currently in crisis. Development costs for major AAA titles have risen steadily in recent years, while consumer spending has dropped drastically in the wake of the COVID-19 pandemic. This is particularly noticeable for market giants like Xbox and Sony.
After several years of rapprochement, both recently announced the return of exclusive titles to create compelling selling points for their consoles once again. In the case of Xbox, however, this apparently isn’t enough yet.
Just a few days after the major Xbox Showcase 2026, which featured more details onFable, Clockwork Revolution, and Gears of War: E-Day, among other titles, the new Xbox head Asha Sharma has now addressed the issue witha public memoto the staff. Sharma took over the CEO position at the end of February from longtime Xbox boss Phil Spencer and has been radically restructuring Microsoft’s gaming division ever since.
To win back the favor of gamers, Sharma partially reversed the controversial Game Pass price hike from October 2025, removed the annoying AI co-pilot, and recently even gave away consoles to particularly loyal fans. However, Xbox also needs to cut costs–and is planning a completereset
of the gaming business.
According to the memo, things aren’t looking good for Microsoft’s gaming division. CEO Asha Sharma writes that Microsoft has invested $20 billion over the past five years. However, Xbox’s current profit margin of just three percent is far too small; this cannot continue. Xbox has spread itself too thin with the sheer number of studios and projects; console manufacturing is currently too expensive.
Layoff Wave in July
Therefore, the company must now carefully examine where it can spend money in the future andmake tough cuts if necessary.While layoffs are not specifically mentioned in the memo, it is quite clear that the cost-cutting measures referred to also include staff reductions. There have already been several such rumors in recent weeks.
Bloomberg journalist and industry insider Jason Schreier reports that he has learned from unnamed sources at Microsoft that the upcoming wave of layoffsis set to be announcedafter the end of Microsoft’s current fiscal year on June 30. According toAccording to a Bloomberg report, the budgets for marketing and several other business areas are expected to be significantly cut. The websiteThe Vergereports about 1,000 layoffs; however, this has not been confirmed.
The New Xbox Strategy
In other areas, however, the new Xbox head is already getting much more specific. The memo mentions five strategic decisions with which Xbox aims to breathe new life into the flagging gaming sector:
- The return of exclusive games:Sharma promises the return of “Signature Exclusives” such asGears of War: E-DayandClockwork Revolution. Every year, there will be new compelling reasons to play within the Xbox ecosystem.
- Radical overhaul of the hardware strategy:Prices for memory components have skyrocketed. Xbox can no longer sell consoles at a loss. Therefore, they plan to change the business model for consoles. What this means for the upcoming console codenamed
Helix
is still unclear. However, it’s quite possible that in the future we’ll see Xbox hardware built by partners (e.g., Asus, Lenovo), or that the focus will shift more toward handhelds or cloud gaming.
- Quality over quantity in Game Pass:In recent years, Xbox has been buying up studios left and right to constantly feed Game Pass with new content. The new strategy is: The big, prestigious franchises (Halo, Forza, etc.) should once again receive the necessary budgets to become absolute hits. Smaller projects or less lucrative series, on the other hand, are likely to be scrapped.
- Technical Spring Cleaning: The current platform infrastructure is too convoluted and not future-proof. Xbox wants to end its collaboration with many external service providers in order to deliver updates and features on its own systems more quickly.
- Strict austerity measures:The days of endless growth are over. In the coming years, Xbox management is likely to scrutinize every investment. This will lead to budget cuts, project cancellations, or even further studio closures.
This strategic pivot will not be easy for the company, writes Sharma. However, it is necessary to make Xbox competitive again against Sony’s PlayStation and other major publishers. Additionally, Valve is currently warming up in the background as another contender for the console market.
According to Sharma, there is no point in hiding uncomfortable truths or simply carrying on as before. Within five years, the new Xbox leadership team aims to get its flagship product in the best possible shape for the next console war.
