Xbox Facing Major Layoffs and Budget Cuts as CEO Asha Sharma Initiates Sweeping “Reset”

Xbox will implement “significant” staff layoffs and deep cuts to marketing budgets in July 2026, as new CEO Asha Sharma enacts her “Next 100 Days: Xbox Reset” strategy following steep financial losses and surging hardware costs.

Microsoft’s Xbox division is preparing to lay off a substantial number of employees and reduce spending across key areas, as confirmed by internal company directives and multiple high-profile industry reports. These moves form the cornerstone of CEO Asha Sharma’s urgent recovery plan for Xbox, following a dismal fiscal year marked by sink­ing console sales, lost Game Pass subscribers, and escalating hardware expenses. The initial wave of redundancies is set for July 2026, immediately after Microsoft’s fiscal year closes. Marketing budgets and other operational sectors will also face significant reductions, according to reporting from Jason Schreier at Bloomberg and corroborated by sources cited by Eurogamer.

Financial Challenges: Shrinking Profits, Revenue Losses, and Rising Hardware Costs

A memo distributed to Xbox employees—and later published on the Xbox Wire—offers a rare, candid breakdown of recent financial performance. Sharma and chief content officer Matt Booty, in a letter titled “Next 100 Days: Xbox Reset,” disclosed that Xbox ended the fiscal year with a mere three percent “accountability margin,” Microsoft’s internal metric for profit margin. They confirmed, “annual revenue had decreased nearly half a billion dollars.” This reversal is coupled with a pressing company-wide directive to achieve a 30% margin across Microsoft, though Sharma is reportedly pushing back on applying this blanket figure to Xbox specifically. These figures represent the sharpest downturn for Xbox in years, reflecting a confluence of market forces and internal missteps.

The reset letter also addressed the “component crisis” triggered by soaring demand from the generative AI industry. Sharma wrote, “when she joined as CEO in February, the cost of this hardware was twice as much as it was last autumn.” She added that, “for the autumn 2027 season, she expects another ‘significant’ increase, ‘taking us over 5x the prices we paid only two years earlier’.” This dramatic spike in hardware procurement costs threatens Xbox’s ability to competitively price and manufacture new consoles.

Operational Reset: Immediate Steps and Strategic Shifts

The impact of falling console sales is clearest in the UK, where Xbox has endured its worst year on record. This downturn is compounded by the loss of millions of Game Pass subscribers after a controversial price hike, as disclosed recently by Xbox’s chief strategy officer. Despite this, Sharma remains resolute, outlining a bold but disruptive approach to transforming the brand’s trajectory.

Central to Sharma’s reset is a return to platform-exclusive titles, with newly announced games such as Gears of War: E-Day and Clockwork Revolution confirmed to remain only on Xbox and PC, avoiding PlayStation 5. Sharma’s internal note on the Xbox Wire underlines her commitment to “rebuild the platform infrastructure and content pipeline, while focusing on its ‘beloved’ franchises.” She acknowledged the changes may be, “‘surprising’ and even ‘frustrating’ for some staff,” emphasising major internal restructuring.

According to multiple insider sources, Eurogamer received independent confirmation that layoffs are imminent and has sought comment from Microsoft. The employee memo, jointly signed by Asha Sharma and Matt Booty, summarises the next steps for employees and the troubled gaming company:

• July 2026: First round of staff layoffs scheduled, targeting departments across the company.
• Marketing Budgets: Significant cuts affirmed by management sources and reporting by Bloomberg.
• Accountability Margin: Current fiscal year’s margin is 3%, with the company aiming for 30% business-wide (Xbox may diverge from this target).
• Annual Revenue Decline: Statement of nearly $500 million lost year-over-year.
• Component Costs: Five-fold increase in hardware pricing expected by autumn 2027 compared to 2025, according to CEO Sharma.
• Console Sales: UK arm posts its worst sales year on record for Xbox consoles.
• Game Pass Losses: Millions of subscribers lost after a price hike, per Xbox’s chief strategy officer.
• Platform Exclusivity Push: High-profile franchises to remain off PlayStation 5.

Sharma and Booty concluded in their public communication that the coming months would be “challenging,” stating, “these changes may be ‘surprising’ and even ‘frustrating’ for some staff.” The memo signals a period of significant change as Xbox pivots sharply to salvage market share and business viability.

Analysts note that this reset is among the most aggressive in Xbox history, with Sharma’s willingness to take early, drastic action likely to reshape both internal culture and the company’s relationship with its customers. While many employees face uncertainty, Xbox leadership appears determined to prioritise financial recovery and brand reinvigoration over immediate comfort and continuity.