Xbox Undergoes Major Reset: Layoffs Loom as New CEO Asha Sharma Confronts Revenue Decline and Hardware Crisis

Microsoft's Xbox division is set for significant layoffs shortly after the company's fiscal year ends on June 30, 2026, as part of a broader overhaul led by new CEO Asha Sharma. Bloomberg first reported the planned cuts, citing sources familiar with the restructuring, noting that exact numbers remain unclear but will likely include reductions in marketing and other areas alongside budget slashes.[1]

The moves follow an official Xbox Wire memo from Sharma and Chief Content Officer Matt Booty, titled 'Next 100 Days: XBOX Reset,' which details five key challenges facing the business. The executives highlight that, excluding Activision Blizzard King, Xbox has invested over $20 billion in content, platforms, and hardware subsidies over five years, yet annual revenue has declined by nearly half a billion dollars. They project ending the fiscal year at around a 3% accountability margin, down year-over-year, and warn that this trajectory 'cannot continue.'[2]

A central issue is a 'hardware component crisis,' with storage component prices rising dramatically—over 5x what they were two years prior by the 2027 holiday planning period—exacerbated by industry-wide memory cost surges. This has limited console production despite strong player demand (over 1 billion annual users logging 72 billion hours). The memo also addresses overextension in studios, infrastructure complexity, and the need to refocus on high-potential franchises amid intense competition for attention.[3]

Sharma, who assumed the role in February 2026 succeeding Phil Spencer, has publicly discussed these pressures, including at the Bloomberg Tech conference. Reports from The Verge, Game Informer, and Quartz corroborate the layoffs timeline and the memo's candid tone, noting internal preparations for weeks and potential studio impacts.[4]

This reset reflects deeper strategic shifts post-Activision Blizzard acquisition, emphasizing efficiency, self-reliance in engineering, and new hardware partnerships while committing to initiatives like Project Helix.