Xbox is cutting 3,200 jobs, roughly 20% of its workforce, and divesting four studios in what new CEO Asha Sharma called “the most significant restructure in Xbox history” in a Monday memo obtained by Bloomberg, Variety, and Kotaku. Half the cuts, 1,600 people, happened Monday; the remaining 1,600 will roll through fiscal 2027. The framing matters as much as the numbers: this is the formal end of the Game Pass-first thesis Microsoft spent nearly $80 billion assembling over the last decade.

Compulsion Games and Double Fine spin out as independents. Ninja Theory (mid-development on Senua) and Undead Labs (mid-development on State of Decay 3) are being sold to undisclosed buyers, with terms letting them finish their games under new owners. Arkane Lyon is entering Works Council consultation in France as a possible fifth divestment. Combined, those four studios employ roughly 350 people.

“Our business today is not healthy,” Sharma wrote. “We must reset Xbox.” Bloomberg’s Jason Schreier, Brody Ford, and Cecilia D’Anastasio reported that Xbox’s margins run three to ten times lower than comparable Microsoft businesses. That’s the actual indictment. All those Call of Duty and Skyrim acquisitions were meant to feed a Netflix-style subscription flywheel, and the flywheel didn’t spin fast enough to justify the capex.

The broader Microsoft reduction totals 4,800, about 2.1% of headcount, coming roughly a year after a 9,100-person round that killed the Perfect Dark reboot and Everwild and shuttered The Initiative. Chief People Officer Amy Coleman, a 27-year veteran, is running the process. Management gets flattened to no more than five layers; vendor spend gets cut 50%. Helen Chiang, who ran Mojang, is promoted to COO. Dave McCarthy is retiring.

Wall Street’s read is quieter and more brutal. Microsoft shares slipped 1% Monday, down 19% year-to-date, and D.A. Davidson’s Gil Luria called the gaming business “almost irrelevant” to Microsoft. Sharma wrote that growth returns in 2027. That’s the same fiscal year the second batch of layoffs finishes landing.

Sources