Undead Labs, the studio behind the State of Decay series, is reportedly at risk of closure as part of Microsoft's planned restructuring of its Xbox division. According to reports from GamesBeat and Windows Central, Microsoft may seek to divest the studio if a suitable buyer is not identified before the end of the company's fiscal year on June 30.
This news comes as a surprise given the recent promotional efforts for State of Decay 3, including a new trailer that debuted earlier this month. The game is understood to be nearing completion, and its release is uncertain should Undead Labs cease operations. Bloomberg's Jason Schreier noted that studios on Microsoft's potential closure list might be spun out and re-established as independent entities by their management, a move that could potentially preserve some jobs. However, significant layoffs appear to be unavoidable.
State of Decay 3 is currently anticipated for release in 2027 across Xbox Series X|S, PlayStation 5, and PC. In the interim, developers from various first-party Xbox studios have publicly called for Microsoft to implement layoff protections ahead of potential workforce reductions this summer.
The broader future of the Xbox division itself is also a subject of speculation, with rumors suggesting it could be spun off from Microsoft as a standalone company. This follows recent price increases for Xbox consoles, with further hikes potentially slated for 2027. Microsoft CEO Satya Nadella has emphasized the need for the Xbox division to demonstrate greater financial returns, signaling that more drastic measures may be implemented to achieve this objective.