Xbox is set to lay off 3,200 employees, representing nearly 20% of its workforce, as parent company Microsoft accelerates its artificial intelligence (AI) strategy and restructures its gaming business. The announcement marks one of the largest workforce reductions in Xbox’s history.
In a message shared with employees, Xbox CEO Asha Sharma said the company’s financial performance has made difficult decisions unavoidable. According to Sharma, 1,600 employees will be laid off immediately, while the remaining job cuts will take place throughout FY2027.
The restructuring also includes the divestment of four gaming studios, with another studio expected to be separated from the company as Xbox focuses on streamlining operations and improving profitability.
CEO Says Xbox Must Reset Its Business
In her email, Sharma acknowledged that Xbox’s business is facing significant financial challenges.
“Our business today is not healthy,” she said, explaining that Xbox is currently operating at profit margins three to ten times lower than comparable gaming platforms and publishers.
She emphasized that the layoffs are not a reflection of employees’ talent or dedication, but rather a necessary step to build a more sustainable business.
Sharma also revealed that Xbox has been losing 64 cents for every dollar invested annually, making structural reforms essential for the company’s future.
Three-Pillar Strategy to Revive Xbox
The Xbox CEO outlined a long-term strategy focused on three key priorities:
- Overhauling Xbox’s gaming content portfolio.
- Modernizing the Xbox platform and services.
- Simplifying organizational operations.
She said the company intends to become more agile by reducing bureaucracy and speeding up decision-making.
Flatter Organization and Lower Costs
One of the biggest organizational changes will be a reduction in management layers.
According to Sharma, some departments currently have as many as 14 levels of management, slowing execution and innovation. Xbox plans to reduce that number to five layers, and in some areas, as few as three.
The company will also cut vendor spending by 50% as part of broader cost-saving measures.
Studios to Report Directly to CEO
Sharma announced that Mojang and King, two of Xbox’s largest gaming businesses by monthly active users, will now report directly to her.
She described both studios as strategic platforms that provide strong geographic reach, player engagement, and long-term growth opportunities.
Helen Chiang Named Chief Operating Officer
As part of the restructuring, veteran executive Helen Chiang has been promoted to Chief Operating Officer (COO) of Xbox.
She will oversee content, hardware, platform, and services under a single operating model while taking full responsibility for profit and loss across the business.
According to Sharma, the new leadership structure will enable faster investment decisions, greater accountability, and improved operational efficiency.
AI Investment Continues Despite Job Cuts
The Xbox layoffs form part of Microsoft’s broader AI-driven restructuring, which affects approximately 4,800 employees across the company.
Despite the workforce reductions, Sharma said Xbox will continue investing heavily in gaming over the coming years, but with a stronger emphasis on disciplined spending and strategic priorities.
She concluded by expressing confidence that the changes would position Xbox for long-term success, stating that the company aims to become “where the world plays and creates” over the next decade.
