Microsoft Xbox Layoffs Start in July as Sharma Slams 3% Margin

Microsoft’s Xbox division is preparing a fresh round of major layoffs in July, weeks after gaming chief Asha Sharma told staff the unit will close its fiscal year at a 3% accountability margin and warned that more than $20 billion in five-year spending had not stopped annual revenue from sliding. Bloomberg News reported the cuts Wednesday, citing people familiar with the plans; Microsoft has declined to comment.

Sharma, who took over as CEO of Microsoft Gaming in February, framed the moment in a public memo co-signed with Xbox content chief Matt Booty as the start of a 100-day reset. The layoffs, expected shortly after Microsoft’s fiscal year closes on June 30, would be the first major restructuring of her tenure and come as the division has lost ground on consoles, content and services in three straight reporting periods.

‘Reset’ Memo Frames a Squeeze That Built Up Five Years of Pressure

Microsoft gaming chief Asha Sharma told Xbox staff this week that the unit will end its fiscal year at about a 3% accountability margin, a Microsoft-internal profitability measure, and used the same memo to flag a five-year spending bill. In the message, co-signed with Xbox chief content officer Matt Booty, Sharma said the division has spent more than $20 billion on content, platforms, and hardware subsidies since fiscal 2021, and that annual revenue has still fallen by nearly half a billion dollars over that stretch. “This cannot continue,” the memo said. Sharma also called the realities ahead “surprising and even frustrating,” and framed the next 100 days as a reset.

The squeeze is showing up in the public numbers. The Q3 FY26 gaming revenue filing shows gaming revenue down 7% year over year to $5.3 billion, with Xbox hardware revenue off 33% on lower console sales and Xbox content and services revenue down 5%. That is the third straight quarter in which the unit has lost ground on at least one of those lines, and it is the first fiscal year under Sharma’s leadership.

Excluding Activision Blizzard King, over the past five years, we have spent over $20 billion on ongoing investments in our content, platform, and hardware subsidy, but our annual revenue has declined nearly half a billion during that time. Going forward, this cannot continue.

The memo was attributed to Asha Sharma, CEO of Microsoft Gaming, and Matt Booty, chief content officer at Xbox, and published on the Xbox blog on June 10. The full June 10 reset memo sets out five “realities” Sharma and Booty want the business to confront. Sharma is a former Instacart chief operating officer and Meta vice president of product and engineering who joined Microsoft in 2024 and ran the company’s Core AI product organization before taking the gaming job. Booty, a long-tenured Microsoft games executive, now reports to her as executive vice president and chief content officer. The memo said staff should expect a sprint over the next 100 days on hardware, content, platform, and services, and closed with a pledge that “we won’t succeed by hiding hard truths, nor will we succeed by doing the same thing and expecting different results.”

Cuts Land in July, Right After Microsoft’s Fiscal Year Closes

The major July Xbox layoff plan is expected to land shortly after Microsoft closes its fiscal year on June 30, according to Bloomberg, in the first month of FY27. The exact number of jobs affected is not yet clear. Sources told The Verge that the cuts could involve a studio closure or changes to the Xbox studio lineup, and a recent Giant Bomb podcast episode floated a figure of about 1,000 positions, which has not been confirmed by Microsoft or Bloomberg.

Microsoft has not publicly commented on the plans, and the memo itself does not mention layoffs. Bloomberg first reported the cuts, with The Verge and Reuters confirming the timing. A spokesperson for Microsoft declined to comment to The Verge and did not immediately respond to a Reuters request for comment. The cuts would follow several previous rounds of Xbox reductions over the past 18 months, including a deep July 2025 round that touched King, ZeniMax, and Turn 10.

• 3% projected Xbox accountability margin for fiscal 2026
• $5.3B gaming revenue in Microsoft’s Q3 FY26, down 7% year over year
• 33% drop in Xbox hardware revenue in Q3 FY26
• $20B+ spent on Xbox content, platforms, and hardware subsidies over five years, excluding Activision Blizzard King
• 1B+ players and 72B hours played on Xbox platforms annually, excluding much of China

The Hardware Squeeze Sharma Says Few Peers Matched

The most concrete of Sharma’s five “realities” is hardware, and the numbers in the memo are striking. “When I joined as CEO in February, the price we paid for console storage components was over 2x as high as we paid last fall,” the memo reads. “These costs have since doubled again. And as we plan for the 2027 holiday season, we expect another significant increase, taking us over 5x the prices we paid only two years earlier.” Memory costs, the memo added, have followed a similar trajectory. The result, the memo said, is that Xbox “is currently unable to make as many consoles as players want to buy.”

Microsoft is not alone in facing a component squeeze, but Sharma wrote that the company believes it has been hit harder than many of its peers, citing the hardware choices Microsoft made over the last half decade. Those choices include subsidizing consoles to hit consumer price points and absorbing the cost difference. The memo referenced “Helix,” a rumored next-generation Xbox console that has not been officially announced, and said the unit needs “a new business model and partnerships for hardware” while remaining committed to it.

The cost curve matters because console economics had been one of the central reasons Xbox lost money. A console sold at or below cost makes it back, in theory, on software royalties and subscription fees. With hardware revenue down 33% in the latest quarter and component prices climbing, the gap between the subsidy and the software-driven payback has widened. The memo’s language points to two routes forward: revamp the hardware business model and look for OEM partners who could build Xbox-branded devices based on AMD’s new chips. The studio closure risk raised this week by The Verge also noted that Xbox strategy chief Matthew Ball has been hinting at “radically different” console business models in recent days.

Sharma’s February message to gaming staff kept the console commitment firm. “We will continue to be committed to console gaming and to the console experience,” she wrote at the time, a line that has not been repeated in this week’s reset memo.

Studios Expanded for Strategies That Kept Changing

The second of Sharma’s realities targets Xbox’s studio system. “We expanded our studio system when we needed a pipeline of content to meet multiple strategies across subscription, streaming, and devices,” the memo reads. “In the process, we have found ourselves over extended as we executed on changing strategies in a landscape of more readily available content.” The company, the memo said, is “the fortunate steward” of franchises that include Halo, Gears of War, and Forza, but has “not adequately funded them to compete and win.”

The franchise list is the part of the message fans and developers will read most closely. The 2023 acquisition of Activision Blizzard, which closed at a reported $69 billion, added Call of Duty, World of Warcraft, Diablo, Candy Crush, and the King mobile studio to the Xbox roster. The 2021 acquisition of ZeniMax Media added Bethesda, id Software, and Arkane, among others. The expansion gave Microsoft some of the largest publisher scale in the industry, but the memo’s logic is that scale did not translate into a focused content strategy, with Windows Central writing that the next 100 days could bring “studio closures or adjustments to Xbox’s studio lineup.” Microsoft declined to comment on the specific risk of a studio closure.

The memo’s “over extended” line is the clearest hint of where the cuts may land, with engineering and operations also in scope. The platform infrastructure section called the division “too reliant on vendors” and said Xbox would “look at capabilities across all of XBOX and potential M&A” to win in hardware, PC, mobile, and streaming. The reassessment, the memo added, must run “for the next 5 years.” Which studios, if any, get cut is the question the memo leaves to staff to read between.

Here are the five “realities” Sharma and Booty set out in the memo:

• 1 billion players on Xbox platforms, 72 billion hours played each year, excluding much of China
• 3% accountability margin for the fiscal year, down year over year
• A hardware component crisis, with storage and memory costs rising sharply through 2027
• A studio system that is “over extended” relative to its current strategies
• Platform infrastructure that is “not built for the battle ahead” and too dependent on vendors

Xbox Just Killed the Multiplatform Gears Bet

Three days before the memo, Sharma made her first big public move. At the Xbox Games Showcase on June 7, she announced that Gears of War: E-Day, the next entry in the franchise, and Clockwork Revolution, a new role-playing game from inXile Entertainment, would be Xbox console exclusives. The decision reversed the multiplatform strategy Microsoft had been pursuing since 2024, when it began shipping former Xbox exclusives like Sea of Thieves, Grounded, Pentiment, and Hi-Fi Rush to PlayStation 5 and Nintendo Switch. Bloomberg reported Wednesday that a PlayStation 5 version of Gears of War had been in development and was canceled just before the showcase.

The Showcase itself was Sharma’s first leading the event after Phil Spencer’s retirement. The stage also carried the new Xbox logo, restyled in flat geometric form and rolled out across Microsoft’s gaming properties. “Players can continue to expect signature exclusives from us every year,” the memo said, citing the showcase as evidence that “a reliable pipeline of first- and third-party exclusives and new IP are critical to our success.” More first-party exclusives had been a top request on the player feedback channel Microsoft launched this year, and the showcase’s exclusive pivot is the first Xbox-side answer.

Game Pass Went the Other Way in April

A month before the Showcase, Sharma’s team had moved in the opposite direction on Game Pass. On April 21, Microsoft cut Xbox Game Pass Ultimate from $29.99 to $22.99 a month and PC Game Pass from $16.49 to $13.99, per the April 21 Game Pass price update. The move partially reversed a July 2025 price hike that had lifted Ultimate from $19.99 to $29.99, a roughly 50% jump that drove a wave of player backlash.

The trade-off was content. In the same announcement, Microsoft said future Call of Duty titles would not join Game Pass Ultimate or PC Game Pass at launch, with new entries added during the “following holiday season,” about a year later. Existing Call of Duty titles in the library remain available to subscribers.

The memo frames Game Pass as one of the few bright spots. “Our Game Pass team set to work fixing our offering and after 8+ months of decline, our service has started to grow again,” Sharma and Booty wrote. The April 21 price cut and the Showcase’s exclusive announcements both predate the layoffs, suggesting the pricing reset is the strategy that survives. Its success will be measured against the same margin figure Sharma flagged in the memo.

The new Game Pass pricing came alongside a separate Microsoft announcement that future Call of Duty titles would launch on Microsoft’s cloud service at the same time as on console, a quiet but important move for a franchise whose original pitch to regulators was central to the Activision deal. The cloud-first Call of Duty launch is, in a sense, the most Activision-era idea in Sharma’s portfolio to survive the reset.

The April 21 cut and the Showcase’s exclusive strategy point in opposite directions, and the layoffs land on the side of the strategy that costs less to run. The Game Pass price cut lowers subscriber cost per user, removes the most expensive day-one entitlement, and asks the platform to do more with the studios it has. Day-one Game Pass releases like the bullet-hell shooter Luna Abyss, which joined Ultimate and PC tiers at launch, are part of the value-add model the price cut is meant to support.

The New Boss, 100 Days In

Sharma is roughly 100 days into the gaming job, the same frame her own memo uses. She took over from Phil Spencer in February, after Spencer announced his retirement following 38 years at Microsoft, including 12 years leading gaming. Spencer’s exit was packaged with the departure of Sarah Bond, then president and chief operating officer of Xbox, leaving Sharma to rebuild the gaming leadership bench alongside Booty and strategy chief Matthew Ball.

Her background is the unusual part. Before joining Microsoft in 2024 as president of product in the Core AI business, she spent four years as a vice president of product and engineering at Meta and served as chief operating officer at Instacart. In her own note to gaming staff at the time of her appointment, she pledged that Microsoft would “recommit to our core Xbox fans and players” and would not “flood our ecosystem with soulless AI slop.” The platform-infra section of this week’s memo, calling for Xbox to “become more self-reliant as an engineering culture to build for the future,” echoes that stance.

The cuts are the first big test of that pledge. The 100-day reset Sharma set out in the memo runs through the layoffs, the studio reassessment, the hardware business model rethink, and the platform rebuild, with no public timeline yet on when any of it ends. Microsoft declined to comment on the specific timing of further announcements; Bloomberg’s reporting suggests the first wave of job notifications could land in early July. The fiscal year closes on June 30, and the new one opens with a smaller Xbox.