Xbox is going through its biggest change in 25 years. On Monday, July 6, 2026, CEO Asha Sharma told staff the company is cutting about 3,200 jobs. That’s roughly 20% of its workforce. About 1,600 people lost their jobs right away. The rest will follow over the next year. This is part of a bigger Microsoft layoff of 4,800 workers. The news touches more than just gaming. It shows Xbox is rethinking its whole business.
Sharma didn’t hold back in her memo. She said Xbox’s business today is “not healthy.” Over the last five years, Xbox spent over $20 billion on games and hardware. That’s not counting the huge Activision Blizzard deal. Yet yearly income still dropped by almost half a billion dollars. Xbox’s profits are also far lower than similar companies, according to Fortune’s exclusive report. Microsoft’s latest earnings showed a 33% drop in Xbox hardware sales. This is part of the industry’s worst hardware cost crisis ever. It’s hitting Xbox’s consoles & hardware business hard. Xbox had bet big on Game Pass and owning many studios. But those bets grew too slowly. Sharma became CEO in February. Her goal now is to make the Xbox move faster.
Four studios are also leaving Xbox. This is a big shift for the gaming industry. Two studios are going independent and keeping their game rights. Compulsion Games(South of Midnight)returns to founder Guillaume Provost. Double Fine Productions (Psychonauts 2) returns to founder Tim Schafer. Two more studios are being sold to new owners, who haven’t been named yet, according to Kotaku. Ninja Theory is working on Senua. Undead Labs is working on State of Decay 3. Both games still have funding to be finished. One studio’s future stays unclear. Arkane Lyon, maker of Dishonored and Blade, is under formal review in France.
Some things won’t change. This is the latest round of product updates. No previously announced Xbox game has been cancelled. Games already in the works will still come out. Game Pass stays a top priority. Xbox is also creating a new chief operating officer role. It goes to longtime executive Helen Chiang. She will now oversee content, hardware, and services together.
Sharma calls this a reset, not a retreat. She says Xbox doesn’t need to own every studio. Instead, it wants fewer, stronger partnerships. This fits a bigger trend in gaming. Big games now cost more and take longer to make. Many companies are asking how many studios they really need.
Online reactions are mixed. Some fans are glad the studios avoided closing. Others say the job losses are the real story. It may take years to know if this plan works.
Author’s Note:
This announcement is about more than workforce reductions. It reflects a major change in how Microsoft plans to manage Xbox in the years ahead. The coming months will show whether this strategy works. Microsoft believes a smaller studio network can still succeed. The company says it can continue delivering the high-quality games players expect. At the same time, the company hopes it will create a stronger gaming business.
Leave a comment