Microsoft’s Xbox division is preparing for a major restructuring that could include substantial job cuts, according to a memo from Xbox CEO Asha Sharma and multiple media reports.
In a message to employees published on the Xbox blog, Sharma outlined a broad effort to reshape the gaming business as it faces rising costs and changing market realities. While the memo did not directly reference layoffs, Bloomberg reported that workforce reductions are expected shortly after Microsoft’s fiscal year concludes on June 30. Gaming outlet Giant Bomb has reported that as many as 1,000 employees could be affected.
Sharma also signaled that Microsoft is rethinking its long-term hardware strategy. She said the company is exploring “radically different” approaches to future Xbox consoles as escalating component and storage costs put pressure on both the business and consumers.
The Xbox chief suggested that Microsoft’s aggressive expansion strategy may have stretched the division’s resources. Over the past several years, Microsoft has spent heavily to build its gaming portfolio, acquiring major publishers and studios including ZeniMax Media, Obsidian Entertainment, and Activision Blizzard in a landmark $69 billion deal.
READ: Microsoft cuts Xbox Game Pass prices; ‘Call of Duty’ won’t launch day one (April 22, 2026)
Beyond the Activision acquisition, Microsoft’s gaming business has invested more than $20 billion in studio purchases and hardware subsidies during the last five years. Despite that spending, annual gaming revenue has fallen by nearly $500 million over the same period, and the company is expected to end the fiscal year with profit margins down about 3%.
A growing challenge for Xbox is the rising cost of digital storage, an issue Sharma linked to the rapid expansion of AI data centers. She said storage expenses for the gaming business have surged since she assumed leadership in February. Microsoft was already paying roughly twice as much for Xbox storage as it had the previous fall, and those costs have since doubled again.
According to Sharma, storage expenses could increase fivefold between fall 2025 and the 2027 holiday season, when Microsoft’s next-generation Xbox console, currently known by the codename Helix, is expected to arrive.
Previous leaks related to the console’s chip design have suggested that Helix will feature premium hardware that could make it significantly more expensive to produce. Industry-wide memory shortages, combined with growing demand driven in part by AI infrastructure investments, are now raising concerns that the next Xbox generation could carry a much higher price tag than its predecessors.
The expected restructuring comes after a series of major strategic changes introduced under Sharma’s leadership as Microsoft works to stabilize its gaming business and rebuild subscriber growth.
One of the company’s most notable moves was reversing course on Xbox Game Pass pricing.
Microsoft lowered the monthly cost of Game Pass Ultimate to $22.99 after a previous increase to $29.99 in October 2025 triggered a significant subscriber decline. Xbox Chief Service Officer Matthew Ball later acknowledged that the price hike had cost the platform millions of users.
Microsoft has also adjusted its content strategy. Future installments of Call of Duty will no longer arrive on Game Pass at launch. Instead, new releases will be added to the subscription service a year after their initial debut.
READ: Stellantis, Microsoft collaborate for AI in cars (April 16, 2026)
At the same time, the company is bringing back a more traditional approach to console exclusives. Upcoming titles including Gears of War: E-Day, scheduled for release in October 2026, and Clockwork Revolution, expected in 2027, are set to launch exclusively on Xbox consoles.
The decision marks a shift from Microsoft’s recent multiplatform push. Gears of War: E-Day had previously been viewed as a potential PlayStation 5 release, but Microsoft now plans to keep both games exclusive to its console ecosystem for the foreseeable future. Company executives have indicated that exclusivity decisions will be made individually for each title, with story-driven and single-player games more likely to remain platform-specific.
Not every franchise will follow that model. Microsoft intends to keep major live-service games, including Call of Duty, available across competing platforms such as PlayStation and Nintendo, allowing the company to maintain access to larger player communities.
Early signs suggest the strategy may be helping Xbox hardware sales. Industry data from the United Kingdom indicates that the launch of Forza Horizon 6 contributed to an increase in Xbox Series console purchases, reinforcing Microsoft’s view that high-profile game releases can still drive demand for its hardware.
The latest round of reductions would add to a broader workforce contraction at Microsoft. The company says it has eliminated roughly 39,000 positions since the beginning of 2023. If the reported Xbox cuts move forward as expected, the total number of jobs eliminated during that period would approach 40,000.