Xbox Plans Major Layoffs and Budget Cuts Amidst Financial Challenges

Xbox is reportedly preparing for major job cuts and significant budget reductions across marketing and other business areas, expected to take place in July. The scale and specific details of these impending changes remain unclear.

This move would mark the first round of layoffs under Xbox CEO Asha Sharma, who assumed her role in February. Since her appointment, Sharma has implemented several changes, including removing Microsoft’s Copilot AI from gaming consoles and lowering prices for the Xbox Game Pass subscription service.

Sharma has publicly acknowledged Xbox's struggles, stating at a recent Bloomberg Tech conference that the business was "not in a healthy spot" and required "resetting." She attributed some of the challenges to the gaming industry's difficulties and rising AI-related costs, noting that memory and storage costs have increased significantly. According to Sharma, console storage component prices have doubled since she joined in February, doubled again, and are projected to be over five times higher by the 2027 holiday season compared to two years prior.

In a recent blog post, Sharma detailed further challenges, including an anticipated fiscal year-end accountability margin of approximately 3%, down year over year. She also highlighted that Xbox, excluding Activision Blizzard King, has invested over $20 billion in content, platform, and hardware subsidy over the past five years, while annual revenue declined by nearly half a billion during the same period. Sharma identified an "overly complex" platform infrastructure, reliance on vendors, and a "hardware component crisis" as contributing factors.

In related news, Craig Duncan, head of Xbox Game Studios, recently stepped down, having joined the team in November 2024. Chief of Staff Louise O’Connor is also departing.

These planned cuts are in contrast to statements made by Microsoft CEO Satya Nadella in March, where he affirmed Microsoft's long-term commitment to gaming. Nadella stated in an internal Q&A that the company would "continue to invest" in gaming, emphasizing the team's need to demonstrate "excellence in execution and in creativity."

According to Fast Company, these changes indicate that Xbox is joining other organizations that have implemented mass layoffs recently to course-correct its business strategy.