Xbox cuts 3,200 jobs: CEO Asha Sharma blames hardware slump, rising costs behind hard reset

In a bold move, Microsoft's Xbox division is undergoing its most substantial restructuring ever, with plans to cut around 3,200 positions throughout fiscal year 2027. This decision comes as part of an effort to address a decline in growth and restore profitability, as the company grapples with rising costs and sluggish hardware sales. In a revealing memo shared with staff, Xbox Executive Vice-President and CEO Asha Sharma expressed that while the gaming sector has seen rapid expansion, this growth has not been reflected in its financial outcomes. The restructuring is intended not as a retreat, but as a strategic reset aimed at enhancing Xbox's competitiveness in a rapidly changing industry landscape. Sharma's memo outlined the challenging circumstances faced by Xbox, including profit margins significantly lower than those of similar platforms. Despite substantial investments in initiatives like Game Pass, multi-platform publishing, and studio acquisitions, the anticipated growth has not materialized. Consequently, Xbox finds itself with increased operational costs and a workforce that has grown larger without the expected returns. The restructuring will begin immediately, with approximately 1,600 layoffs taking effect right away, followed by further reductions to reach the total of 3,200 positions. Notably, Xbox confirmed that no first-party game cancellations would occur as a result of this restructuring. A key aspect of the reorganization involves a shift in how Xbox manages its internal studios. The company has decided to streamline its portfolio, allowing some studios to operate independently while transferring others to new ownership. This change reflects a growing trend in the industry where independent development is thriving, making it impractical for Xbox to own every promising studio. In addition to layoffs, the restructuring aims to flatten the organizational hierarchy to improve decision-making efficiency. Sharma noted that some processes currently navigate through up to 14 management layers, which slows down decision-making and creates blurred accountability. The goal is to reduce this to a maximum of five layers, ideally condensing it to three. As part of the overhaul, Xbox is also creating a new Chief Operating Officer position to oversee content, hardware, platforms, and services. Veteran executive Helen Chiang, known for her leadership at Mojang and the Minecraft franchise, will take on this role, indicating a shift in focus towards platforms with large player bases rather than traditional game development. Sharma's candid assessment highlighted a crucial reality: simply acquiring more studios does not guarantee improved business performance. She revealed that Xbox has frequently lost money on its investments in studio acquisitions, indicating a need for a different approach to supporting the gaming ecosystem. This restructuring reflects the broader challenges facing the gaming industry as it adjusts to changing market dynamics. After a surge in growth during the pandemic, hardware sales are slowing, and development costs are rising, leading to a series of layoffs across the sector. Despite these cuts, Sharma emphasized that Xbox remains committed to its ambitious long-term goals, aiming to engage over one billion players daily through innovative games and services.