Xbox warns of a 'reset' as it prepares for layoffs

Microsoft’s Xbox division is entering a 100-day reset as internal leaders warn of tougher choices ahead and reporting suggests major layoffs are coming next month.

The shift was laid out in an internal memo from Xbox CEO Asha Sharma and chief content officer Matt Booty, later posted on Xbox Wire as "Next 100 Days: XBOX Reset." The memo frames the effort as a response to falling revenue, rising hardware costs and an operating model the company says is too complex for what comes next.

The Verge reported on June 10 that Microsoft is preparing significant layoffs in Xbox, with the cuts expected next month and possibly including a studio closure or changes to the studio lineup. The outlet said rumors circulating in the industry pointed to roughly 1,000 Xbox layoffs.

What the memo says

In the memo, Sharma and Booty said Xbox had spent more than $20 billion over the past five years on content, platform work and hardware subsidy, excluding Activision Blizzard King, while annual revenue had declined by nearly half a billion dollars.

They also said Xbox is facing a hardware component squeeze, with console storage component prices expected to be more than five times higher than they were two years earlier by the 2027 holiday season. That pressure, they said, means the company needs a new hardware business model and new partnerships.

The memo says Xbox remains committed to Helix, but also argues that the company’s current platform infrastructure is not built for what comes next. It says the division will look across Xbox and potential M&A to compete in hardware, PC, mobile and streaming.

How the reset built up

This reset did not begin on June 10. Windows Central reported on May 28 that Sharma had already told staff Xbox was "building a stronger XBOX" and would have to make hard choices about what it builds and where it invests.

That earlier memo was reported to reference changes to Game Pass and to say recent price cuts had started to reverse negative trends. Taken together, the public messaging suggests Xbox has been moving toward a broader strategic overhaul for weeks.

The June 10 memo and the layoffs reporting now make that direction more concrete. The company is signaling that the next phase could affect not just internal budgets, but also what Xbox builds, sells and supports across hardware and software.

What may change

The reporting so far points to several possible areas of impact: headcount, studio structure, marketing and product lineup decisions. The Verge said sources were not only expecting layoffs, but also watching for a studio closure or other changes to the studio roster.

Microsoft has not publicly confirmed the size, timing or scope of any layoffs beyond the internal reset memo. It also has not said which teams would be affected or whether any specific studio closure is final.

The memo does, however, show why management is rethinking the business. Xbox says the combination of rising hardware costs, declining revenue and infrastructure strain means it needs a different model for the next hardware cycle and new partnerships to match it.

What to watch next

The biggest unanswered question is how deep the cuts will go and where they will land. Another is whether Microsoft will issue a broader public statement beyond the employee memo and the Xbox Wire post.

Also unclear is what the company means in practice by new hardware partnerships and how that will affect future consoles, PC distribution and streaming plans. The memo says Xbox will look across hardware, PC, mobile and streaming, but it does not spell out specific products or deals.

For now, the story is a mix of confirmed restructuring and open-ended reporting. Xbox has acknowledged a reset, and reporting suggests the company is preparing to turn that reset into layoffs, studio changes and a wider reshaping of its business.