Xbox is reportedly preparing for significant layoffs as new CEO Asha Sharma implements an "Xbox Reset" strategy to address financial challenges. According to a report from Bloomberg, these cuts are expected to occur after Microsoft's fiscal year concludes on June 30, and will be accompanied by substantial reductions in marketing and other operational budgets.
Sharma and Xbox chief content officer Matt Booty communicated these plans in a joint post on Xbox Wire, which mirrored an internal email sent to employees globally. While layoffs were not explicitly mentioned in the post, the tone and content suggest impending workforce reductions. The company anticipates ending its fiscal year with a "3% accountability margin," a year-over-year decrease, and has seen its annual revenue decline by nearly half a billion dollars despite a $20 billion investment in content, platform, and hardware subsidies, excluding Activision Blizzard King.
The leadership acknowledged that the company may have overextended itself during its recent acquisition phase, potentially signaling studio closures as part of the corrective measures. "We expanded our studio system when we needed a pipeline of content to meet multiple strategies across subscription, streaming, and devices," the post stated. "In the process, we have found ourselves overextended as we executed on changing strategies in a landscape of more readily available content."
Sharma and Booty emphasized the need for a reliable pipeline of first- and third-party exclusives and new intellectual property, highlighting their critical role in the company's success. They indicated a necessity to reassess the balance between these priorities and the company's investment strategy for the next five years. Sources cited by The Verge also suggest that the planned layoffs and budget cuts could extend to the closure of at least one studio.
Further challenges discussed include the rising cost of console storage components, which have reportedly quintupled in price over the past two years. Xbox is exploring new business models and partnerships for hardware, with a continued commitment to what is referred to as "Project Helix." Additionally, the current platform infrastructure is deemed insufficient for future demands, described as too complex and reliant on external vendors to achieve the desired efficiency.
Sharma and Booty framed these changes as part of a "reset" effort, urging both optimism and realism. They stated, "For some of you, these realities will be surprising and even frustrating to discover. We won't succeed by hiding hard truths, nor will we succeed by doing the same thing and expecting results." The company aims to make rapid progress across hardware, content, experience, and services in the coming "next 100 days."
These developments follow Xbox's recent showcase at the 2026 Summer Xbox Games Showcase, where titles like Gears of War: E-Day and Clockwork Revolution were announced as Xbox console exclusives, and Fable was revealed to be launching on both Xbox and PlayStation 5. Matt Booty also discussed the current state of Xbox in an interview with Game Informer at Summer Game Fest Play Days.