Xbox CEO Asha Sharma is preparing to reset Microsoft’s video game division after years of decline.
According to Bloomberg, the move will result in major cuts across the division shortly after the conclusion of Microsoft’s fiscal year on June 30, 2026. Xbox is reportedly also planning to reduce marketing budgets and spending across other areas of the business.
Additional sources speaking to The Verge have indicated the cuts might even result in a studio closure or changes to the Xbox Game Studios lineup.
In a memo sent to workers yesterday and subsequently published online, Sharma and Xbox chief content officer Matt Booty stated that Xbox is preparing to reset in order to “revive” the company.
“It is important to have both optimism and realism as we work to reset the business,” reads the memo, which suggests notable changes will be made in the next 100 days.
The message explains that Xbox has spent over $20 billion on content, platform, and hardware investments over the past five years (excluding its Activision Blizzard King merger) only to see annual revenue decline by almost $500 million over that period.
“Going forward, this cannot continue,” states the memo.
Sharma and Booty added that an ongoing memory and component shortage—driven by rampant investment in AI technology by major tech companies including Microsoft (thanks, Yahoo! Finance)—represents a huge challenge for the division.
“When I joined as CEO in February, the price we paid for console storage components was over 2x as high as we paid last fall. These costs have since doubled again. And as we plan for the 2027 holiday season, we expect another significant increase, taking us over 5x the prices we paid only two years earlier,” the memo continues.
“Memory costs have followed a broadly similar trajectory. While the entire industry is facing a components crisis, we believe we have been impacted more greatly than many of our peers due to the choices we made over the last half decade. We are currently unable to make as many consoles as players want to buy, and we need a new business model and partnerships for hardware as we remain committed to Helix.”
Both leaders stated that Xbox has found itself “over extended” after expanding its studio system at breakneck speed with the acquisitions of ZeniMax Media and Activision Blizzard. Microsoft spent almost $70 billion on the Call of Duty maker in 2023 but Sharma recently suggested it’s unclear whether the deal is paying off.
In addition, Sharma and Booty said Xbox needs to become more “self-reliant” as opposed to leaning hard on third-party vendors. “We must increase the value we ship to players while decreasing the time it takes to do so. Going forward, we’ll evolve and rebuild our stack and look at capabilities across all of XBOX and potential M&A to help us win in hardware, PC, mobile, and streaming,” the memo adds.
The memo doesn’t explicitly state that layoffs are imminent, but Microsoft has shown more than willing to downsize in recent years.
The company has sanctioned four major rounds of layoffs since completing its merger with Activision Blizzard, eliminating thousands of roles across Xbox Game Studios and beyond while shuttering notable studios such as Arkane Austin, Alpha Dog Games, and The Initiative.
Game Developer has reached out to Microsoft for comment.