Microsoft’s Xbox Division Reportedly Prepares for Major Reset and Possible Layoffs
Microsoft’s gaming business may be heading into another difficult transition as Xbox leadership prepares a broad restructuring effort known internally as the “Next 100 Days: Xbox Reset.” The move comes as the company looks to address slowing revenue growth, thin profit margins, and concerns that the division has become stretched across too many priorities.
According to reporting from Bloomberg, Microsoft is expected to announce a new round of layoffs shortly after the company closes its fiscal year on June 30. The cuts could affect several parts of the Xbox organization, with marketing and related business areas reportedly facing deeper reductions.
Xbox CEO Asha Sharma and chief content officer Matt Booty recently addressed employees in a candid internal memo, acknowledging that the company expanded aggressively in recent years to support multiple strategies, including Game Pass subscriptions, cloud gaming, hardware, devices, and a growing first-party studio network. However, that expansion appears to have created operational pressure at a time when the gaming market is becoming more competitive and content is more widely available than ever.
The memo outlined a challenging financial picture for the Xbox business. Xbox is reportedly expected to finish the year with an estimated 3% profitability margin. Excluding Microsoft’s costly Activision Blizzard acquisition, the gaming division has spent more than $20 billion over the past five years on content, platforms, and hardware-related investments. Despite that spending, annual Xbox revenue has reportedly declined by nearly $500 million.
Sharma and Booty admitted that the company has made mistakes, but emphasized the importance of learning from them and adjusting strategy. Their message framed the next 100 days as a crucial period for rebuilding the business with a balance of optimism and realism.
A key point in the memo was that Xbox expanded its studio system to support a wide range of goals, from subscription gaming to streaming and device-based access. But leadership now believes the organization has become overextended while trying to execute shifting strategies. The memo also noted that Xbox controls some of the most recognizable franchises in the games industry, yet has not always funded them at the level needed to compete effectively.
That statement suggests Microsoft may now prioritize fewer projects, stronger investment in key franchises, and a more focused approach to Xbox’s long-term direction. While the company still has major gaming assets and a large player base, leadership appears ready to make difficult decisions about which teams, projects, and business areas receive support going forward.
The possible layoffs would add to a wave of job cuts that has already affected the gaming industry over the past two years. Microsoft itself has made significant reductions across its gaming teams since completing the Activision Blizzard deal, as it works to integrate studios, control costs, and improve profitability.
For Xbox fans, the reset raises important questions about the future of first-party games, console hardware, Game Pass, and cloud gaming. Microsoft has repeatedly emphasized its goal of making Xbox available across more screens and devices, but this new strategy may signal a shift away from rapid expansion and toward a leaner, more disciplined business model.
Sharma and Booty described the process as part of building a “stronger Xbox,” but also made clear that the path forward will involve hard choices. The coming months could reveal which parts of Microsoft’s gaming strategy remain central to its future and which areas may be scaled back as the company attempts to improve performance and regain momentum.
