Xbox Boss Asha Sharma Announces 3,200 Job Cuts as Major Restructuring Reshapes Gaming Division

BySSZee Media

Jul 9, 2026 ##News #Entertainment, #Featured, #gaming, #Microsoft, #News, #Xbox

Microsoft has unveiled a sweeping restructuring of its Xbox division, with Xbox chief Asha Sharma confirming that approximately 3,200 employees will be laid off during the 2027 financial year. Around 1,600 of those job cuts take effect today, 6 July.

As part of the overhaul, four Xbox studios will move out of Microsoft’s ownership, while another is under review for a possible sale or spinout. According to an internal email sent to staff and reviewed by IGN, Sharma described the move as the most “significant” restructuring in Xbox’s history, admitting that the company’s gaming business “is not healthy.” Overall, Microsoft’s gaming division is expected to lose roughly one-fifth of its workforce.

Among the biggest changes, Compulsion Games, the studio behind South of Midnight, and Double Fine Productions, known for Psychonauts, will become independent once again. Both studios will retain their intellectual property, existing game catalogs, and funding to develop their next, currently unannounced projects.

Meanwhile, Ninja Theory and Undead Labs are set to transition to new owners. According to Sharma, the studios “have entered terms to join new ownership with funding to complete and grow Senua and State of Decay 3.” Microsoft has not revealed who the new owners will be.

Arkane Studios, currently developing Marvel’s Blade, has entered a consultation process with its Works Council in France to explore “potential strategic options” under French labor law. Microsoft has not confirmed what this means for Marvel’s Blade.

The layoffs also extend across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios. Despite the workforce reductions, Microsoft says none of its publicly announced first-party titles have been canceled. Projects including Fable, Gears of War: E-Day, Clockwork Revolution, Call of Duty: Modern Warfare 4, Minecraft Dungeons 2, and The Elder Scrolls 6 remain in development.

The announcement comes a year after Microsoft’s previous round of layoffs that affected 9,000 employees company-wide and led to the cancellation of projects such as Rare’s Everwild and the closure of The Initiative.

In her message to employees, Sharma acknowledged the impact of the decision, writing, “We are beginning the most significant restructure in XBOX history.” She added that “Today’s decisions do not reflect their talent or dedication.”

Explaining the reasons behind the changes, Sharma said, “Our business today is not healthy,” pointing to shrinking margins, slower-than-expected growth in Game Pass and multi-platform initiatives, and what she described as “the most severe hardware crisis in its history.”

The restructuring also includes a major organizational overhaul. Management layers will be reduced, platform teams streamlined, vendor spending cut by 50%, and development processes simplified. Sharma said the company will focus on a flatter structure built around “makers,” “player-coaches,” and “directly responsible individuals (DRIs).”

As part of the leadership shakeup, Helen Chiang has been promoted to the newly created role of Chief Operating Officer, overseeing content, hardware, platform, and services. At the same time, longtime Xbox executive Dave McCarthy will retire after 17 years with the company.

Despite the scale of the cuts, Sharma maintained that the changes are intended to position Xbox for long-term success. “These changes are about a bigger future for XBOX, not a smaller one,” she wrote, adding that Microsoft expects the gaming business to “return to growth in 2027.”