Microsoft’s Xbox division is poised to cut up to 1,000 jobs as it undergoes a significant restructuring amid rising costs and strategic shifts in the gaming market.
Microsoft’s Xbox division is preparing for a significant restructuring that may result in the loss of up to 1,000 jobs, according to a memo from Xbox CEO Asha Sharma and various media reports.
In a message to employees shared on the Xbox blog, Sharma outlined a comprehensive effort to reshape the gaming business in response to rising costs and evolving market dynamics. While the memo did not explicitly mention layoffs, Bloomberg reported that workforce reductions are anticipated shortly after the conclusion of Microsoft’s fiscal year on June 30. Gaming outlet Giant Bomb has indicated that as many as 1,000 employees could be impacted.
Sharma also indicated that Microsoft is reevaluating its long-term hardware strategy. She noted that the company is exploring “radically different” approaches for future Xbox consoles, as escalating component and storage costs are exerting pressure on both the business and consumers.
The Xbox chief suggested that Microsoft’s aggressive expansion strategy may have overextended the division’s resources. In recent years, Microsoft has invested heavily to enhance its gaming portfolio, acquiring major publishers and studios such as ZeniMax Media, Obsidian Entertainment, and Activision Blizzard in a landmark $69 billion deal.
Beyond the Activision acquisition, Microsoft’s gaming division has invested over $20 billion in studio acquisitions and hardware subsidies during the past five years. Despite this significant spending, annual gaming revenue has declined by nearly $500 million during the same period, with the company projected to finish the fiscal year with profit margins down approximately 3%.
A growing challenge for Xbox is the rising cost of digital storage, an issue Sharma linked to the rapid expansion of AI data centers. She mentioned that storage expenses for the gaming division have surged since she took the helm in February. Microsoft was already paying roughly double for Xbox storage compared to the previous fall, and those costs have since doubled again.
According to Sharma, storage expenses could increase fivefold between fall 2025 and the holiday season of 2027, when Microsoft’s next-generation Xbox console, currently referred to by its codename Helix, is expected to launch.
Previous leaks regarding the console’s chip design have suggested that Helix will feature premium hardware, potentially making it significantly more expensive to produce. Industry-wide memory shortages, combined with increasing demand driven in part by AI infrastructure investments, are raising concerns that the next Xbox generation could carry a much higher price tag than its predecessors.
The anticipated restructuring follows a series of major strategic changes introduced under Sharma’s leadership as Microsoft seeks to stabilize its gaming business and rebuild subscriber growth.
One of the company’s most notable moves was reversing its decision on Xbox Game Pass pricing. Microsoft reduced the monthly cost of Game Pass Ultimate to $22.99 after a previous increase to $29.99 in October 2025 led to a significant decline in subscribers. Xbox Chief Service Officer Matthew Ball later acknowledged that the price hike had resulted in millions of lost users.
Microsoft has also revised its content strategy. Future installments of Call of Duty will no longer be available on Game Pass at launch; instead, new releases will be added to the subscription service a year after their initial debut.
Simultaneously, the company is returning to a more traditional approach regarding console exclusives. Upcoming titles, including Gears of War: E-Day, scheduled for release in October 2026, and Clockwork Revolution, expected in 2027, will launch exclusively on Xbox consoles.
This decision marks a shift from Microsoft’s recent multiplatform strategy. Gears of War: E-Day had previously been considered for a potential PlayStation 5 release, but Microsoft now intends to keep both games exclusive to its console ecosystem for the foreseeable future. Company executives have indicated that exclusivity decisions will be made on a case-by-case basis, with story-driven and single-player games more likely to remain platform-specific.
However, not every franchise will follow this model. Microsoft plans to keep major live-service games, including Call of Duty, available across competing platforms such as PlayStation and Nintendo, allowing the company to maintain access to larger player communities.
Early indications suggest that this strategy may be positively impacting Xbox hardware sales. Industry data from the United Kingdom shows that the launch of Forza Horizon 6 has contributed to an increase in Xbox Series console purchases, reinforcing Microsoft’s belief that high-profile game releases can still drive demand for its hardware.
The anticipated job cuts would add to a broader trend of workforce reductions at Microsoft. The company has reported eliminating approximately 39,000 positions since the beginning of 2023. If the reported Xbox cuts proceed as expected, the total number of jobs eliminated during this period could approach 40,000.
According to Bloomberg, the restructuring reflects the challenges facing Microsoft’s gaming division as it navigates a rapidly changing industry landscape.