Xbox Reportedly Planning Big Layoffs As Internal Memo Warns “This Can’t Go On” – WGB

Microsoft’s Xbox division is reportedly gearing up for another major round of layoffs, with Bloomberg reporting that the cuts are expected in July, shortly after Microsoft’s fiscal year ends on June 30.

The exact number of people affected is not yet known, although The Verge reports that rumors of around 1,000 people being laid off have been circulating. The Verge also says the cuts could include studio closures or changes to Xbox’s studio lineup.

Microsoft has not officially announced the layoffs at the time of writing. However, an internal memo from Xbox CEO Asha Sharma and chief content officer Matt Booty has now been published by Xbox, and it paints a grim picture of why the company is entering what leadership calls a “reset.” Mind you, “reset” is a word Asha has been saying a lot lately.

The memo doesn’t specifically mention layoffs, but it certainly reads like the kind of email that arrives just before more uncomfortable meetings start popping up on calendars.

“Now we begin the next 100 days,” Sharma and Booty wrote. “It’s important to be optimistic and realistic as we work to reset the business.”

That reality includes a grim look at Xbox’s current financial situation. According to the memo, Xbox will end the fiscal year with about a 3% “accountability margin,” which is Microsoft’s internal profit metric. Worse, Sharma and Booty say, without the Activision Blizzard King, Xbox has spent more than $20 billion over the past five years on content, platform investment and hardware support, while annual revenue has fallen by nearly half a billion.

“Moving forward, this cannot continue,” the memo said.

In business terms: the spreadsheet has gone into kill mode.

Bloomberg reports that, along with the planned job cuts, Xbox is expected to significantly reduce its marketing budget and other parts of the business. That fits with the broader message of the memo: Xbox was spending too much money, spreading itself too thin, and not getting enough back for it.

The memo also says that Xbox has “expanded” after expanding its studio program to support more strategies across subscriptions, streaming and devices. That’s the most important line given the Verge’s report that studio changes, or closures, could be part of the upcoming cuts.

“We are the lucky owners of industry-defining franchises with huge opportunities and demand for players, but we haven’t given them enough money to compete and win,” Sharma and Booty wrote.

That’s an interesting admission. Xbox owns Halo, Gears of War, Forza, Fable, Minecraft, The Elder Scrolls, Fallout, Doom, Call of Duty and more. It has, on paper, one of the strongest portfolios in sports. And yet Microsoft effectively admits that having a dragon collection of famous names is not enough if you don’t fund, manage and use them properly. Gee wizz, Microsoft, what an amazing idea.

The memo says Xbox now needs to reassess the balance between its established franchises, third-party exclusives, third-party exclusives, new IP and investment priorities over the next five years.

One big change already seems to be happening: specials are back on the menu.

In recent years, Microsoft has pushed many Xbox games to rival platforms, including the PlayStation and Nintendo Switch, as part of a broader strategy to bring its games to more players. That made sense from a software revenue perspective, but it also raised an awkward question: why buy an Xbox if the big Xbox games are coming somewhere else anyway?

The memo specifically states that Xbox is “reintroducing exclusives” with Gears of War: E-Day in 2026 and Clockwork Revolution in 2027. It also says gamers can expect “signature exclusives” from Xbox every year.

That doesn’t mean that all Xbox games are suddenly locked away from PlayStation and Nintendo. Microsoft’s new position seems to be moving slowly. But after several years of Xbox fans wondering if the concept of Xbox exclusives was quietly taken from the back of the barn, it’s still a big change.

Bloomberg reports that this change in direction may be sudden. According to its sources, the PlayStation 5 version of Gears of War: E-Day had been in development before Sharma changed course, and retailers were said to be preparing to open pre-orders for it. In fact, we’ve seen one of those pre-orders go live at Walmart, and a PEGI rating for Gears of War: IE-Day was spotted a few days before the Xbox Showcase. Journalist Jeff Grubb said the decision to leave the PS5 version was made at the last minute. Then we also saw the Gears of War: E-Day trailer with the PS5 logo uploaded by mistake. Although Aaron Greenberg of Xbox argued that the decision was not made at the last second.

Another major problem facing the Xbox hardware. And somehow, yes, the news gets worse.

The memo says that the Xbox is experiencing a “hardware component problem.” When Sharma became CEO in February, Xbox was apparently already paying more than twice as much for the console’s final components as it had paid last fall. That cost has doubled again.

Looking ahead to the holiday season of 2027, Xbox expects another significant increase, taking the cost of the storage component to more than five times what it was paying two years earlier. Memory costs are said to follow a similar pattern.

“Currently we can’t make the many consoles that gamers want to buy, and we need a new business model and hardware compatibility as we remain committed to Helix,” the memo said.

The talk of a new business model and hardware integration is particularly interesting, because it suggests that Microsoft may be looking beyond the traditional idea of ​​simply making and selling one big black box under the TV.

That could mean Xbox-branded devices made with partners, close relationships with PC hardware manufacturers, multiple console-PC hybrid ideas, or something else entirely. Either way, the old model of funding hardware and hoping to replace it with software and services seems to be under a lot of pressure.

The memo also takes a look at the Xbox platform’s infrastructure, saying its current plans are “not built for the coming war.” Sharma and Booty describe Xbox’s internal systems as overly complex, involving hundreds of dependencies, while saying the company has become too reliant on vendors.

That part is less exciting than the prospect of a studio closing or a Special U replacement, admittedly, but it’s important. Xbox doesn’t just mean it costs less. It says the machinery that underlies the entire business needs to be rebuilt.

There are some good notes in the memo. Sharma and Booty say the Xbox forum teams have posted more updates in the last 100 days than in the previous year combined. Game Pass, which seemed to be in decline for more than eight months, has started to grow again. The memo also states that more than one billion gamers choose to play Xbox and its games each year, 72 billion hours across console, PC, mobile and streaming.

If the reporting from Bloomberg and The Verge proves to be accurate, July could be another brutal month for Xbox employees. Microsoft has already spent the last few years cutting jobs, closing studios, canceling projects and raising prices in its games business. This latest reset sounds like it could be another significant reshaping of Xbox under Sharma’s leadership.

For gamers, more visible changes may come later: more exclusives, a different next-generation hardware strategy, a stronger focus on big franchises and a leaner studio portfolio.

However, for workers, immediate anxiety is much easier and worse: waiting to see where the ax falls.