Xbox Faces Fresh Layoff Reports as Microsoft Considers Major Changes to Gaming Business
Microsoft’s gaming division could be heading for another round of job cuts as the company grapples with rising costs, slowing hardware sales and growing pressure to redefine the future of the Xbox brand.
Reports indicate that Microsoft may announce significant layoffs within its gaming business in the coming weeks, following comments from Xbox leadership suggesting that major structural changes are under consideration.
The speculation follows an internal memo from Xbox Chief Executive Officer Asha Sharma, who acknowledged mounting financial challenges facing the division. While the memo did not explicitly mention layoffs, industry sources told Bloomberg that workforce reductions are expected shortly after Microsoft’s fiscal year concludes on June 30.
According to reports, as many as 1,000 positions could be affected, potentially pushing Microsoft’s total job losses since 2023 to around 40,000 employees across the company.
In the memo, Sharma said Microsoft invested heavily in acquisitions and hardware support over the past five years as it sought to strengthen Xbox’s portfolio of first-party game studios.
Those investments included major acquisitions such as ZeniMax Media, the parent company of Bethesda Softworks, role-playing game developer Obsidian Entertainment and Activision Blizzard, the publisher behind the Call of Duty franchise.
Sharma revealed that, excluding the Activision Blizzard acquisition, Microsoft’s gaming division spent more than $20 billion on acquisitions and hardware subsidies during the last five years. Despite the investment, annual revenue reportedly declined by nearly $500 million over the same period, while profit margins are expected to fall by approximately three percent this fiscal year.
The Xbox boss also highlighted rising hardware costs linked to the growing demand for artificial intelligence infrastructure. According to Sharma, the expansion of AI data centres has contributed to sharp increases in digital storage and memory prices.
She disclosed that storage costs for Xbox hardware had doubled by the time she assumed leadership in February and have continued to rise. Microsoft reportedly expects storage-related costs to be five times higher by the 2027 holiday season compared to late 2025.
Those cost pressures could have significant implications for the company’s next-generation console, currently known by the codename “Helix.”
Industry rumours have long suggested that the upcoming console will feature powerful hardware, but rising component prices could make future gaming systems considerably more expensive than previous generations.
Speaking in a separate interview, Sharma suggested that traditional console business models may no longer be sustainable.
“I think we’ve 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.
She added that the industry could soon witness “radically different business models” designed to make gaming more accessible to consumers.
Alongside potential business model changes, Microsoft is also reassessing its software strategy. The company recently confirmed that upcoming titles such as Gears of War: E-Day and Clockwork Revolution will remain exclusive to Xbox consoles, although both games are also expected to launch on PC via Steam.
The move marks a shift from Microsoft’s recent approach of bringing more first-party titles to competing platforms.
However, the company has clarified that future exclusivity decisions will be made on a case-by-case basis. Live-service franchises such as Call of Duty are expected to remain available across PlayStation and Nintendo platforms.
Meanwhile, the wider gaming industry continues to face restructuring challenges. Reports suggest Ubisoft is also preparing another round of layoffs that could affect approximately 380 employees across its operations in Serbia and Canada.
As rising development costs, economic uncertainty and changing consumer habits reshape the gaming sector, major publishers appear increasingly focused on cost reductions and long-term sustainability.
