Microsoft’s Xbox division is reportedly preparing significant layoffs and budget cuts as new CEO Asha Sharma begins a broad reset of the gaming business.
- The layoffs are reportedly expected after Microsoft’s fiscal year ends on June 30, though the scale has not been disclosed.
- CEO Asha Sharma has described the business as “not in a healthy spot” and is leading a broad reset of operations and strategy.
- According to a memo sent to employees, Xbox has spent over $20 billion in five years on content and platform investments, while revenue has declined by nearly half a billion.
Microsoft Corp.’s (MSFT) Xbox division is reportedly planning major layoffs next month, though the exact scale of the cuts is not yet clear. Xbox is also reportedly planning to significantly slash budgets for marketing and other areas of the business.
Layoffs Expected After Fiscal Year-End
The layoffs at Xbox, a major player in the video game industry, are expected shortly after the close of Microsoft’s fiscal year on June 30, according to Bloomberg. This will mark the first major set of changes under new CEO Asha Sharma, who took over the role in February.
Sharma has previously acknowledged the challenges facing the business, saying at the Bloomberg Tech conference that she plans to “reset the business,” which she described as being “not in a healthy spot.”
In a memo sent to Xbox employees globally on Wednesday, Sharma outlined what she called several “surprising and even frustrating” realities facing the Microsoft-owned gaming division. She said the business has fallen to a 3% “accountability margin,” Microsoft’s internal measure of profitability.
The memo stated that, excluding Activision Blizzard King, Xbox has spent over $20 billion in the past five years on content, platform development, and hardware subsidies, while annual revenue has dropped by nearly half a billion dollars. “Going forward, this cannot continue,” said the memo.
The memo also added Xbox will “evolve and rebuild our stack” and review capabilities across the business, including potential M&A, to strengthen its position in hardware, PC, mobile and streaming.
Studio Expansion Left Xbox Overextended, Says Leadership
Through the memo, Sharma also addressed Xbox’s studio strategy, saying the company expanded its studio system to support multiple goals across subscription, streaming and device-based gaming.
However, she said this expansion has left the business “overextended” as strategies shifted in a fast-changing content landscape. While Xbox remains home to major franchises with strong demand, she stated that the company has not funded them enough to stay competitive.
She also stressed the importance of maintaining a steady pipeline of first-party and third-party exclusives, along with new IP, calling it critical to future success. Xbox, she said, needs to reassess how it balances these investments over the next five years.
Xbox Faces Weak Growth Across Hardware, Games, Subscriptions
Xbox has struggled to grow in recent years, reported Bloomberg, adding that hardware sales have fallen sharply, the company has failed to consistently deliver hit games and growth in its Game Pass subscription service has slowed.
In response to pressure from Microsoft to improve margins, Xbox has spent the past two years cutting costs by closing studios, canceling projects, and raising prices.
The company has also reportedly shifted away from exclusivity, releasing more of its games on competing platforms such as Sony’s PlayStation and Nintendo.
MSFT Stock: What Retail Says
On Stocktwits, retail sentiment around MSFT stock was ‘extremely bearish’ at the time of writing, while message volume was ‘normal.’
MSFT stock has lost 15.4% in the past 12 months.
For updates and corrections, email newsroom[at]stocktwits[dot]com.<