REDMOND, July 6, 2026 (Alliance News): Microsoft has announced the largest restructuring in the history of its Xbox gaming division, with 3,200 employees set to lose their jobs as newly appointed Xbox CEO Asha Sharma unveiled a sweeping turnaround strategy aimed at restoring the business to profitability.
The restructuring will reduce Xbox’s workforce by approximately 20%, with 1,600 positions being eliminated immediately and the remaining cuts taking place over the next year.
In a company-wide memo issued on Monday, Sharma acknowledged the challenges facing the gaming business, stating that Xbox’s operating margins are significantly lower than those of comparable platform and publishing companies.
“Our business today is not healthy,” Sharma wrote, adding, “We must reset Xbox.”
As part of the overhaul, four game development studios will leave the Xbox organisation. Compulsion Games and Double Fine Productions will become independent studios while retaining ownership of their intellectual property and financial resources for future projects.
Meanwhile, Ninja Theory and Undead Labs are in discussions with potential buyers to complete development of their upcoming titles, Senua and State of Decay 3. Consultations are also underway at Arkane Studios in France regarding possible strategic changes.
The workforce reductions will affect employees across several Microsoft gaming subsidiaries, including Activision, Bethesda Softworks, Blizzard Entertainment, King, Mojang Studios and Xbox Game Studios.
Despite the layoffs, Sharma assured employees that none of Xbox’s publicly announced first-party games or ongoing projects would be cancelled.
According to the new CEO, Xbox entered the current console generation with a smaller installed player base, rising operating costs and slower-than-expected growth in both Game Pass subscriptions and multi-platform revenues.
To improve efficiency, the company will introduce a new organisational structure limited to five management layers, reduce vendor spending by 50% and streamline internal operations.
As part of the leadership changes, Helen Chiang has been promoted to Chief Operating Officer with full profit-and-loss responsibility across content, hardware, platforms and services.
The restructuring also marks the end of an era for Xbox, with veteran executive Dave McCarthy retiring after 17 years with the company.
