Xbox plans layoffs as Microsoft eyes budget cuts under new CEO: Report

Microsoft's gaming division Xbox is preparing for another round of layoffs and significant budget reductions as new chief executive Asha Sharma moves to overhaul a business grappling with slowing growth, declining hardware sales and mounting profitability pressures, Bloomberg News report.

According to the report, the layoffs are expected shortly after Microsoft's fiscal year ends on June 30, though the exact number of jobs that could be affected remains unclear. The report said Xbox is also planning substantial cuts to marketing spending and other operational budgets as part of a broader effort to improve financial performance.

First major restructuring under Sharma

The planned job cuts would mark the first major restructuring under Sharma, who took over as CEO of Xbox in February. Since assuming leadership, Sharma has signalled a willingness to rethink the gaming division's strategy after years of underwhelming financial performance.

Speaking at the Bloomberg Tech conference recently, Sharma described Xbox as "not in a healthy spot" and said her goal was to reset the business rather than chase traditional software-industry profit margins.

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According to an internal email cited by Bloomberg, Sharma told employees that Xbox's accountability margin — Microsoft's internal profitability metric — had fallen to just 3 per cent.

"Excluding Activision Blizzard King, over the past five years, we have spent over $20 billion on ongoing investments in our content, platform and hardware subsidy, but our annual revenue has declined nearly half a billion during that time," Sharma wrote.

"Going forward, this cannot continue."

A gaming giant under pressure

Xbox has faced growing challenges in recent years despite Microsoft's aggressive investments in gaming content, subscriptions and cloud gaming services.

The company's flagship Game Pass subscription service, once viewed as a key growth engine, has struggled to maintain momentum. Hardware sales have also continued to decline as Microsoft's Xbox consoles lose ground to competitors.

At the same time, the gaming division has struggled to consistently deliver blockbuster exclusive titles that could drive console demand and subscription growth.

Under pressure from Microsoft to improve profitability, Xbox has already shuttered studios, cancelled projects and raised prices over the past two years.

The acquisition of Activision Blizzard significantly expanded Microsoft's gaming portfolio, but executives have acknowledged that broader structural challenges remain.

Rethinking Xbox's future

In her email, Sharma indicated that Xbox would need to rebuild parts of its platform infrastructure and reassess investment priorities.

"We expanded our studio system when we needed a pipeline of content to meet multiple strategies across subscription, streaming and devices," she wrote.

The executive added that the company had become overextended while pursuing multiple business models simultaneously and needed to focus resources more effectively.

The comments suggest Microsoft may scale back some of its previous ambitions around cloud gaming and subscription-led growth while placing greater emphasis on high-profile gaming franchises.

Return to exclusives?

One of the most notable shifts under Sharma has been a renewed focus on exclusive content.

In recent years, Microsoft increasingly released Xbox-developed games on rival platforms such as Sony's PlayStation and Nintendo systems, helping titles like Forza Horizon and Indiana Jones reach larger audiences.

However, the strategy also raised questions about the long-term appeal of Xbox hardware.

During the recent Xbox Showcase, Sharma announced that major upcoming titles including Gears of War: E-Day and Clockwork Revolution would not be released on competing platforms.

According to Bloomberg News, a PlayStation 5 version of the new Gears of War title had been under development before the strategy changed. The report also said Xbox pulled a Halo trailer from a PlayStation event, highlighting a broader shift in approach.

The pivot could strengthen the Xbox brand among core gamers but may come at a cost. Sony's PlayStation 5 has sold more than 90 million units globally, while analysts estimate Xbox console sales at roughly one-third of that figure.

For Microsoft, the challenge now will be balancing profitability, platform growth and content investment as it seeks to revive one of the gaming industry's most recognisable brands.