Microsoft’s gaming division is set to eliminate approximately 3,200 jobs over the course of fiscal 2027 as part of what Xbox CEO Asha Sharma called the “most significant restructure in Xbox history,” expanding on the sweeping reorganization that began with the company’s latest round of layoffs.
In an internal email sent to Xbox employees and later shared publicly on social media, Sharma said about 1,600 positions would be eliminated immediately, with additional workforce reductions planned throughout the fiscal year. The broader restructuring will also see four Xbox studios transition to new ownership or independent management.
“We are beginning the most significant restructure in Xbox history,” Sharma wrote. “These changes will directly affect people who have poured their creativity into building Xbox.”
The announcement follows Microsoft’s decision to cut roughly 4,000 jobs companywide, with Xbox among the hardest-hit divisions. The company also announced plans to spin off or restructure several gaming studios as it seeks to improve profitability amid slowing hardware sales and rising development costs.
READ: Microsoft cuts 4,000 jobs as Xbox restructures studios (July 6, 2026)
Sharma said the restructuring was driven by fundamental business challenges rather than employee performance.
“Our business today is not healthy,” she wrote. “We are operating at margins that are three to 10 times lower than comparable platform and publishing businesses.”
According to Sharma, Xbox entered the current console generation with a smaller install base and higher operating costs than competitors. While Microsoft’s investments in Game Pass, multiplatform publishing and studio acquisitions created value, they failed to generate the growth the company had anticipated.
The memo outlined a three-part turnaround strategy focused on content, platform simplification and operational restructuring.
As part of the content reset, Compulsion Games and Double Fine Productions will become independent studios again, retaining their intellectual property and funding for future projects. Ninja Theory and Undead Labs are expected to move to new ownership while continuing development of Senua and State of Decay 3. Arkane Studios in France is also reviewing strategic alternatives through consultations required under French labor law.
Sharma said no previously announced first-party Xbox games have been canceled despite the restructuring.
READ: Xbox faces up to 1,000 job cuts amid Microsoft gaming overhaul (June 12, 2026)
The company will also simplify its organizational structure by reducing management layers to no more than five, and in some cases just three. Platform teams have grown by about 40 percent since the launch of the current Xbox generation even as player engagement has declined, Sharma said.
Xbox also announced a major leadership change. Helen Chiang, previously head of Mojang, has been promoted to chief operating officer with responsibility for profit and loss across Xbox’s content, hardware, platform and services businesses. Mojang and King will now report directly to Sharma.
The restructuring comes as the video game industry grapples with slowing console demand, rising development costs and growing pressure to integrate artificial intelligence into game development while maintaining profitability.
Despite the cuts, Sharma said Microsoft remains committed to investing in Xbox.
“These changes are about a bigger future for Xbox, not a smaller one,” she wrote. “History is full of companies that mistake longevity for inevitability. We will not be one of them.”