Microsoft's Xbox division is laying off 3,200 employees - around 20% of its workforce - as part of a restructuring effort. Of these, more than 1,600 roles are being eliminated immediately, with the remaining job cuts planned over the course of the next fiscal year.
In a note to employees shared on X, Xbox CEO Asha Sharma described the move as "the most significant restructure in Xbox history" and acknowledged the impact on employees. "I know this is painful. These changes will directly affect people who have poured their creativity into building XBOX. Today's decisions do not reflect their talent or dedication," Sharma wrote.
Explaining the reason behind the layoffs, Sharma said Xbox's business had struggled despite years of expansion. "Our business today is not healthy. We are operating at margins that are 3-10x lower than comparable platform and publishing businesses," she wrote.
The Xbox chief also said that the company expanded aggressively through studio acquisitions and investments in Game Pass, multi-platform gaming and a broader content portfolio. However, those bets "did not grow at the pace we expected," she said.
"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," she added.
{{/usCountry}}"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," she added.
{{/usCountry}}Sharma also said that as part of the restructuring, 4 game development studios will leave Xbox.
She added that no publicly announced first-party Xbox games or projects are being cancelled because of the restructuring, although job reductions will affect teams across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang and Xbox Game Studios.
Sharma also announced major organisational changes, saying Xbox had become overly complex. "Today, in some parts of the company, work passes through as many as 14 layers of management," she wrote, adding that platform teams had grown by 40% even as player numbers and playtime declined.
The company plans to reduce management layers to no more than 5, while simplifying its internal structure and cutting vendor spending by 50%.
Xbox appoints new chief operating officer
Xbox is also creating a new chief operating officer role. Helen Chiang has been promoted to the position and will oversee content, hardware, platform and services under a unified operating model.
The Xbox layoffs come amid Microsoft's wider cost-cutting efforts as the company increases investments in artificial intelligence. Overall, Microsoft is cutting around 4,800 jobs across the company as it joins other major technology firms in reshaping operations to prioritise AI spending.
Despite the layoffs, Sharma said the restructuring was intended to position Xbox for future growth. "These changes are about a bigger future for Xbox, not a smaller one. The next decade of gaming will be larger, more global, and more creative than anything we've seen before," she wrote.
"History is full of companies that mistake longevity for inevitability. We will not be one of them," said another.