Xbox CEO Asha Sharma has indicated that Microsoft’s gaming division will undergo significant layoffs and structural changes, according to a staff memo published on the Xbox blog.
The memo did not explicitly mention layoffs, but sources told Bloomberg that the cuts are imminent and are expected to be announced soon after Microsoft's fiscal year ends on June 30. Reports from Giant Bomb suggest that around 1,000 employees could be affected.
Sharma also mentioned that Xbox is considering "radically different" business models for future console hardware, citing increasing storage costs and concerns about consumer expenses.
What Asha Sharma’s Memo Reveals and How Storage Costs Are Reshaping Xbox’s Strategy
Sharma noted that Microsoft may have overreached with its acquisitions of major studios such as ZeniMax, the publisher of the Elder Scrolls series, Obsidian Entertainment, and the $69 billion purchase of Activision Blizzard.
Aside from the Activision deal, Microsoft's gaming division has invested more than $20 billion over the past five years on acquisitions and hardware subsidies.
Over the same period, annual gaming revenue has declined by nearly $500 million, and Microsoft expects to close the fiscal year with a 3 percent drop in profit margins.
Sharma highlighted supply challenges caused by AI data center expansions, which have led to a sharp increase in digital storage prices. When Sharma took over in February, Microsoft was paying twice as much for Xbox storage compared to the previous fall.
Since then, prices have doubled again. Sharma expects Xbox storage costs to increase fivefold between fall 2025 and the holiday season of 2027, which is the anticipated launch window for the next Xbox console, codenamed Helix.
Leaked chip design documents have previously suggested that Helix will be costly due to its high-end hardware specifications. The RAM shortage, partly driven by Microsoft's investments in AI, is now expected to push console prices into new levels.
Radically Different Business Models
In an earlier interview with Fortune, Sharma said that it is becoming difficult to imagine a time when large audiences will be able to afford spending thousands of dollars on a console generation.
He suggested that we will likely see new business models emerging later this year, which might be quite different from traditional approaches.
The memo follows several significant strategy shifts under Sharma's leadership. Microsoft reduced the price of Game Pass Ultimate from $29.99 to $22.99 per month after a price increase in October 2025 led to millions of Xbox subscribers being lost, as confirmed by Xbox Chief Service Officer Matthew Ball.
Call of Duty will no longer be available on day one of Game Pass and will instead launch on the platform one year after its initial release.
Microsoft is also reintroducing console exclusivity for select titles, such as Gears of War: E-Day, set for Xbox consoles in October 2026, and Clockwork Revolution in 2027.
Both titles will remain exclusive to Xbox consoles indefinitely, despite earlier indications that E-Day might be prepared for PlayStation 5. The company has stated that its approach to exclusivity will vary on a case-by-case basis, especially for single-player games.
Live-service titles like Call of Duty will continue to support PlayStation and Nintendo platforms. Early sales data from the UK suggests that Forza Horizon 6 has helped increase Xbox Series console sales, showing that releasing popular titles across multiple platforms can boost hardware engagement.
Wider Industry Layoffs and Xbox’s Plan to ‘Reset’
Microsoft has now announced that its job cuts since the start of 2023 total around 39,000, with the upcoming layoffs potentially raising that number to about 40,000.
Ubisoft is also expected to announce layoffs, with reports indicating roughly 380 roles will be cut at its studios in Belgrade and Winnipeg.
The Belgrade studio will focus solely on the Rainbow Six franchise, while the Winnipeg location primarily develops the company's Anvil and Snowdrop graphics engines.
Microsoft has not provided an exact date for the layoffs or confirmed the final number beyond what has been reported. In a memo, Sharma described the changes as part of a broader effort to "reset" the Xbox business ahead of the next console generation.
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