Layoffs Coming to Xbox Next Month, Report Says

In a move sure to speed up the development of games and improve sales, Microsoft will reportedly lay off Xbox employees in July. It will also apparently cut budgets in multiple areas of the Xbox division including marketing. This is according to an anonymously sourced Bloomberg report.

Bloomberg’s story is sourced from “people familiar with the company’s strategy,” along with a bleak email to Xbox employees from Asha Sharma, the new Xbox CEO who started in February. Bloomberg says it reviewed the email, but didn’t publish the full text.

Microsoft rather cultishly uses its own term, “accountability margin,” instead of “profit margin,” and in the email, Sharma says the Xbox accountability margin has shrunk to 3%. She says the company has spent $20 billion in the past five years “on ongoing investments in our content, platform and hardware subsidy,” only to see revenue decline by “nearly half a billion during that same time.” That’s excluding business from the relatively recently acquired Activision Blizzard King, she says.

Layoffs in July of this year will come in the wake of more layoffs at Xbox one year earlier. Xbox was the main division mentioned in news about 9,000 layoffs across Microsoft in July of 2025. “To position Gaming for enduring success and allow us to focus on strategic growth areas, we will end or decrease work in certain areas of the business and follow Microsoft’s lead in removing layers of management to increase agility and effectiveness,” Phil Spencer, Sharma’s predecessor, wrote in a memo last year.

There had been some promising recent developments at Xbox, including yesterday, when Sharma offered some seemingly straight talk about the state of console gaming—namely that the prices are ruinously high for most people. “We have reached a point where it will be hard to imagine that mass audiences can afford thousands of dollars to spend on a console generation,” she said. Indeed, the Project Helix console does look unbelievably cool, but it’s also unbelievably obvious that no one I know is going to be able to afford one.

Xbox Games Showcase 2026 was also strong, if not a total blockbuster. Neither the Fable reboot, nor the Halo remake, nor the A Plague Tale sequel look like they will suck for any obvious reason so far. That’s great.

Nonetheless, things are apparently horrible behind the scenes at Xbox or this wouldn’t be going on. To quote Sharma in an interview last week, things are “not in a healthy spot.”

One problem, Sharma’s email says, is that Xbox “expanded our studio system when we needed a pipeline of content to meet multiple strategies across subscription, streaming and devices.” To me, expanding your studio system does sort of seem like it would be one step toward creating a pipeline of content, but clearly a lot is going unreported here.

Sharma genuinely seems to have stepped into a tough role amid a strange business environment for the Xbox, if recent remarks by her boss, Microsoft CEO Satya Nadella, are any indication. Last year, a few months before Sharma became CEO, Nadella told interviewers that the competitor to gaming is short-form video—in other words that the kids are on the TikToks when they could be gaming, and folks, how can you compete with that? Nadella then added, rather ominously, that “The best way to innovate is to have good margins. Because that’s the way you can fund.” It’s a deflating thing to say, like saying the best way to raise happy children is to have a good job.

Last month, Sharma earned the goodwill of many gamers by announcing that Xbox would be sunsetting all of its Copilot AI features on mobile, and that it would no longer develop Copilot features for the Xbox console at all. If these layoffs come to pass, she’ll likely be back to square one—or maybe a few steps back from square one—with Xbox gamers.

Bloomberg did not have an estimate of the purportedly imminent headcount reduction at Xbox, only that it will be “major,” and an Xbox spokesperson declined Bloomberg’s request for comment.