Microsoft Layoffs: Xbox CEO Asha Sharma acknowledges 'business is not healthy', flags weak margins amid 3200 job cuts

Microsoft Corp.'s gaming division, Xbox, is set to cut around 3,200 jobs, roughly one-fifth of its workforce, over the next year as part of a sweeping restructuring aimed at reviving the business. The reorganisation will also involve the sale of four video game development studios, while the company has begun the process of separating from a fifth.

Announcing the overhaul in a message to employees on Monday, Xbox Chief Executive Officer Asha Sharma acknowledged the challenges facing the division. “Our business today is not healthy,” she wrote, adding that Xbox's profit margins were three to ten times lower than those of comparable businesses. “We must reset Xbox.”

According to the communication, 1,600 employees will be laid off on Monday, with the remaining job cuts to be carried out over the next 12 months.

What did Xbox CEO say?

“Our business today is not healthy. We are operating at margins that are 3–10x lower than comparable platform and publishing businesses. We entered Gen 9 with a smaller install base and a higher cost structure. To grow, we bet on Game Pass, multi-platform, and a broader portfolio of content. While those businesses have created meaningful value, they did not grow at the pace we expected,” Sharma said on X.

She noted, “As that happened, our core business weakened, and we added more teams, more investment, and more time, hoping for a better outcome. And now the industry is facing the most severe hardware crisis in its history. We must reset XBOX.”

The move comes alongside another 3,200 layoffs across Microsoft's non-Xbox businesses, primarily affecting its sales teams. In a separate memo reviewed by Bloomberg, Chief People Officer Amy Coleman said the workforce reductions were being driven by changes in product development and evolving customer demand.

In her note to employees, Sharma said the restructuring is aimed at simplifying Xbox's operations and redirecting resources towards larger projects. The move marks the most significant decision since she took over as Xbox CEO in February, inheriting what she has previously described as a business facing serious challenges.

Despite major investments, including Microsoft's $69 billion acquisition of Activision Blizzard in 2023, the gaming division has struggled to produce blockbuster titles, experienced a sharp decline in hardware sales and operated in an increasingly challenging market.

In a memo circulated to employees last month, Sharma revealed that Xbox's “accountability margin", Microsoft's internal measure of profit margin, had dropped to 3%, while annual revenue had also declined significantly. “Going forward, this cannot continue,” she mentioned.

Sharma said she wants Xbox to become one of the few companies that entertains more than a billion people every day while giving everyone the opportunity to create and connect. Expressing confidence in the company's future, she mentioned Xbox possesses some of the entertainment industry's most iconic franchises and a network of talented studios across the world, adding that she expects the business to return to growth in 2027.

“History is full of companies that mistake longevity for inevitability. We will not be one of them,” she remarked.

Microsoft shares were down 1.7% at 9:55 am in New York.