Xbox is staring down a pivotal moment. The Microsoft-owned gaming unit is reportedly planning major workforce reductions next month, according to people familiar with its strategy, even as the parent company weighs a spinoff or restructuring of the entire division. The moves come as console sales continue their slide and bets on subscriptions and cloud gaming have fallen short.
Sources told Bloomberg that unspecified "major job cuts" are expected in July, along with significant budget cuts for marketing and other areas of the business. This would mark the first layoff round under CEO Asha Sharma, who took the helm in February. The company has already made sharp changes under her leadership, including removing Microsoft's Copilot AI from consoles and lowering Xbox Game Pass pricing.
Xbox hardware sales dropped 33% year over year in the most recent reported quarter. The division's revenue has declined by nearly half a billion dollars over the past five years, excluding the Activision Blizzard King acquisition, according to an internal note from Sharma and Chief Content Officer Matt Booty. The note acknowledged the unit's troubles, stating the business was "not in a healthy spot."
The discussions around a possible spinoff or restructuring signal that Microsoft may be rethinking its long-term commitment to gaming hardware. Microsoft CEO Satya Nadella previously said the company was "long on gaming," but the latest reports suggest that patience may be wearing thin as cloud gaming subscriber numbers dropped after a 2025 price increase.
Sharma has been candid about the challenges. During a Bloomberg Tech conference panel this month, she spoke about plans for "resetting the business" and acknowledged that the "gaming industry is going through a hard time." The looming layoffs and restructuring talk represent the first major test of her leadership at a division that has struggled to find its footing against dominant rival Sony.