Microsoft $MSFT's Xbox division is planning major job cuts in July as new CEO Asha Sharma warned employees that the business "cannot continue" on its current trajectory.
The Microsoft gaming unit's accountability margin has fallen to 3%, and revenue declined nearly half a billion dollars over five years
Bloomberg / Getty Images
Microsoft $MSFT's Xbox division is planning major job cuts in July as new CEO Asha Sharma warned employees that the business "cannot continue" on its current trajectory.
Job cuts are expected to arrive soon after Microsoft closes out its fiscal year on June 30, though the number of positions affected remains undisclosed, according to Bloomberg. Marketing spending and other operational budgets are also on the chopping block, Bloomberg reported. Microsoft declined to comment.
Since taking over as Xbox CEO in February, Sharma has not previously overseen a restructuring of this scale, making the planned cuts a significant early test of her leadership, according to Reuters. Xbox "will be hit with significant layoffs next month," according to GeekWire.
In a memo to employees posted on the Xbox blog on Wednesday, Asha Sharma and Xbox content chief Matt Booty laid out a blunt financial picture. According to the memo, the division is on track to close the fiscal year with an accountability margin of around 3%, a figure that represents Microsoft's internal gauge of how profitable the Xbox business is. Strip out Activision $ATVI Blizzard King, and the numbers are stark: more than $20 billion poured into content, platform, and hardware subsidies over five years, with annual revenue shrinking by close to half a billion dollars across that stretch.
"Going forward, this cannot continue," Sharma and Booty wrote.
The memo did not mention layoffs but described a range of structural problems requiring a reset. The executives cited a hardware component crisis, noting that storage costs have more than doubled since Sharma joined in February and are expected to reach five times their 2024 levels by the 2027 holiday season. Xbox is also grappling with an overextended studio system and aging platform infrastructure, the memo said.
In the most recent quarterly filing, Microsoft reported a 7% drop in gaming revenue to $5.3 billion for the period ending March 31; hardware sales slid 33% as fewer consoles moved off shelves, while content and services revenue fell 5%.
The workforce reductions arrive as Asha Sharma has moved to reverse several strategic decisions made under her predecessor. At Sunday's Xbox Games Showcase, she announced that Gears of War: E-Day and Clockwork Revolution will be released as Xbox console exclusives rather than appearing on rival platforms. Bloomberg reported that work on a PlayStation 5 edition of the new Gears of War had been underway and was scrapped when Sharma decided to reverse course on multiplatform releases.
Microsoft has been reducing headcount across the company for more than a year. The company offered voluntary retirement buyouts to U.S. employees for the first time in its history earlier this year, making roughly 8,750 workers eligible for the program.
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