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Xbox to Cut 3,200 Jobs: CEO Admits Business Is 'Not Healthy', Announces Biggest Overhaul Yet

Posted on 7th Jul 2026 11:58 am by rohit kumar

Microsoft has announced a major restructuring of its gaming division, Xbox, with approximately 3,200 employees set to lose their jobs over the next year. The layoffs represent nearly 20% of Xbox's workforce and come as the company shifts its focus toward Artificial Intelligence (AI) while streamlining its gaming operations.

 

In a message to employees, Xbox CEO Asha Sharma acknowledged that the business is currently facing significant challenges, stating that the layoffs are aimed at rebuilding the company's long-term competitiveness rather than reflecting employee performance.

 

1,600 Employees to Be Laid Off Immediately

 

According to the internal communication, 1,600 employees will be laid off on the first day, while the remaining workforce reductions will take place in phases through the 2027 fiscal year (FY27).

 

The restructuring extends beyond job cuts. Microsoft will also:

 

Shut down or exit four gaming studios.

Divest its stake in another studio.

Simplify management layers.

Reduce operational costs across the gaming business.

CEO: Xbox Business Is 'Not Healthy'

 

Explaining the difficult decision, Asha Sharma said the company's financial performance has weakened considerably.

 

According to the CEO:

 

Xbox's operating margins are 3 to 10 times lower than competing gaming platforms and publishing businesses.

The gaming division is currently facing one of the industry's most challenging hardware cycles.

The company reportedly loses 64 cents for every dollar invested, making operational changes essential.

 

Sharma emphasized that the layoffs are not a reflection of employees' talent or dedication, but rather a necessary step to improve the company's financial health.

 

Microsoft to Flatten Management Structure

 

As part of the restructuring, Xbox will significantly reduce organizational complexity.

 

The company plans to:

 

Reduce management layers from as many as 14 levels to five, with a long-term goal of reaching just three layers.

Cut vendor spending by 50%.

Speed up decision-making through a leaner corporate structure.

 

The move is expected to improve efficiency while lowering operating expenses.

 

Focus Shifts to AI and Independent Game Developers

 

Going forward, Xbox plans to prioritize:

 

AI-powered gaming initiatives.

Support for independent game developers.

Open development tools.

Faster publishing and distribution.

 

Microsoft also announced that Mojang and King—two of Xbox's largest gaming studios in terms of monthly active players—will now report directly to CEO Asha Sharma, reflecting their strategic importance to the company's future growth.

 

Helen Chiang Named New Xbox COO

 

Alongside the restructuring, Microsoft has appointed Helen Chiang as the new Chief Operating Officer (COO) of Xbox.

 

This marks the first time in Xbox's history that a single executive will oversee end-to-end Profit & Loss (P&L) responsibility across:

 

Content

Hardware

Gaming platforms

Services

 

Helen Chiang will report directly to CEO Asha Sharma and will lead operational decisions aimed at improving efficiency, profitability, and long-term business performance.

 

What It Means for Xbox

 

The large-scale layoffs highlight Microsoft's broader strategy of reallocating resources toward AI while reshaping its gaming business for sustainable growth.

 

Although Xbox remains one of the world's largest gaming platforms, the company believes restructuring, cost optimization, and AI-driven innovation will be critical to improving profitability and maintaining competitiveness in the evolving gaming industry.

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