Microsoft’s Xbox division will cut 3,200 jobs in fiscal 2027 as part of a significant restructuring aimed at improving profitability amid industry challenges, according to CEO Asha Sharma.
Microsoft’s gaming division is poised to eliminate approximately 3,200 jobs during fiscal year 2027, marking what Xbox CEO Asha Sharma described as the “most significant restructure in Xbox history.” This announcement builds on a recent wave of layoffs that has already affected the company.
In an internal email to Xbox employees, which was later shared publicly, Sharma indicated that about 1,600 positions would be cut immediately, with additional reductions planned throughout the fiscal year. The restructuring will also involve the transition of four Xbox studios to new ownership or independent management.
“We are beginning the most significant restructure in Xbox history,” Sharma stated. “These changes will directly affect people who have poured their creativity into building Xbox.”
This announcement follows Microsoft’s earlier decision to cut roughly 4,000 jobs across the company, with the Xbox division being one of the hardest hit. The restructuring is part of a broader strategy to enhance profitability amid declining hardware sales and escalating development costs.
Sharma emphasized that the restructuring was driven by fundamental business challenges rather than employee performance. “Our business today is not healthy,” she wrote. “We are operating at margins that are three to ten times lower than comparable platform and publishing businesses.”
According to Sharma, Xbox entered the current console generation with a smaller install base and higher operating costs compared to its competitors. While Microsoft’s investments in Game Pass, multiplatform publishing, and studio acquisitions have created value, they have not generated the anticipated growth.
The memo outlined a three-part turnaround strategy focused on content, platform simplification, and operational restructuring. As part of the content reset, Compulsion Games and Double Fine Productions will regain their independence, retaining their intellectual property and funding for future projects. Meanwhile, Ninja Theory and Undead Labs are expected to transition to new ownership while continuing development on titles such as Senua and State of Decay 3. Arkane Studios in France is also reviewing strategic alternatives in compliance with French labor laws.
Sharma assured employees that no previously announced first-party Xbox games have been canceled despite the ongoing restructuring efforts.
In addition to the job cuts, Xbox will simplify its organizational structure by reducing management layers to no more than five, and in some cases, just three. Sharma noted that platform teams have expanded by about 40 percent since the launch of the current Xbox generation, even as player engagement has declined.
The restructuring also includes a significant leadership change. Helen Chiang, formerly head of Mojang, has been promoted to chief operating officer, overseeing profit and loss across Xbox’s content, hardware, platform, and services businesses. Mojang and King will now report directly to Sharma.
This restructuring comes at a time when the video game industry is facing challenges such as slowing console demand, rising development costs, and increasing pressure to integrate artificial intelligence into game development while maintaining profitability.
Despite the job cuts, Sharma reiterated Microsoft’s commitment to investing in Xbox. “These changes are about a bigger future for Xbox, not a smaller one,” she stated. “History is full of companies that mistake longevity for inevitability. We will not be one of them.”
According to The American Bazaar, the restructuring reflects a significant shift in Microsoft’s approach to its gaming division as it seeks to navigate a challenging market landscape.