Microsoft has announced the sale of two of its development studios, Undead Labs and Ninja Theory, as part of a broader restructuring of its Xbox division. Xbox CEO Asha Sharma stated that both studios "entered terms to join new ownership with funding" to aid in the completion of their respective projects, Senua, a new Hellblade action game, and State of Decay 3.
Compulsion Games and Double Fine are also undergoing changes, becoming independent studios once again. They will retain ownership of their intellectual property and back catalogs, with Microsoft providing funding for their future games. Additionally, Microsoft's Arkane studio in France is entering a consultation period to review "potential strategic options" under French labor laws.
These studio shifts accompany significant workforce reductions. Microsoft is enacting layoffs affecting 1,600 Xbox employees immediately, with another 1,600 planned over the next year. Across the entire company, Microsoft is undertaking a total of 4,800 layoffs, representing approximately 2.1% of its global workforce.
Microsoft executive Amy Coleman cited the rapid transformation of technology and shifting customer needs as drivers for these changes. "Companies don’t get to choose whether their industry changes; they only get to choose whether they change with it," Coleman explained, emphasizing the need to adapt operations for maximum customer impact. She clarified that the job cuts are not a result of AI implementation.
Sharma described the Xbox business as "not healthy," operating with lower profit margins compared to competitors. She acknowledged that efforts to expand with Xbox Game Pass, multiplatform releases, and a wider content portfolio did not achieve the expected growth. "As that happened, our core business weakened, and we added more teams, more investment, and more time, hoping for a better outcome," Sharma said, adding that the industry is currently facing a "severe hardware crisis."
The announcements come despite Microsoft's substantial financial performance. In its most recent fiscal quarter ending April 29, the company reported $82.9 billion in revenue and $31.8 billion in profit. Microsoft, with a market capitalization exceeding $2.8 trillion, remains one of the world's largest corporations. The company also returned $10.2 billion to shareholders through dividends and share repurchases in the same quarter. The significant layoffs at Xbox, a relatively small segment of Microsoft's overall business, have drawn considerable attention given these strong financial results.