To speed up game development and improve sales, Microsoft will reportedly lay off Xbox employees in July. This will obviously lead to budget cuts in several areas of the Xbox division, including marketing. This is according to an anonymously obtained Bloomberg report.
Bloomberg’s story comes from “people familiar with the company’s strategy,” as well as a vague email sent to Xbox employees from new Xbox CEO Asha Sharma, who started in February. Bloomberg says it reviewed the emails, but did not publish the full text.
Microsoft uses its own term, “accountability margin”, instead of “profit margin”, and in the email, Sharma says the Xbox accountability margin has been reduced to 3%. She says the company has spent $20 billion over the past five years “on ongoing investment in our content, platforms and hardware subsidies” but has seen revenue decline by “about half a billion” during that same period. She says it is squeezing out the business of relatively recently acquired Activision Blizzard King.
The layoffs in July this year come in the wake of more layoffs at Xbox a year ago. Xbox was the main division in the news about 9,000 layoffs at Microsoft in July 2025. Sharma’s predecessor Phil Spencer wrote in a memo last year, “To position gaming for sustainable success and allow us to focus on strategic growth areas, we will eliminate or reduce work in certain areas of the business and follow Microsoft’s lead in removing layers of management to increase agility and effectiveness.”
There have been some promising developments on Xbox recently, including yesterday, when Sharma had some straightforward talk about the state of console gaming — namely that prices are too high for most people. He said, “We have reached a point where it would be hard to imagine that a mass audience could spend thousands of dollars on a console generation.” In fact, the Project Helix console looks incredibly cool, but it’s also incredibly obvious that no one I know will be able to buy it.
The Xbox Games Showcase 2026 was also strong, if not an outright blockbuster. Neither the Fable reboot, nor the Halo remake, nor a Plague Tale sequel seem like they’ll go to waste for any apparent reason so far. This is very good.
Still, things are clearly terrible behind the scenes at Xbox, otherwise it wouldn’t be running. To quote Sharma in an interview last week, things are “not in good shape.”
Sharma’s email said one problem is that Xbox “expanded our studio system when we needed a pipeline of content to meet multiple strategies across subscription, streaming, and devices.” To me, expanding your studio system seems like it would be a step towards building a pipeline of content, but clearly there isn’t much being reported here.
If recent comments from his boss, Microsoft CEO Satya Nadella, are any indication, it looks like Sharma has stepped into a tough role amid a strange business environment for Xbox. Last year, a few months before Sharma became CEO, Nadella told interviews that gaming’s competitor is short-form video — in other words, when kids can gaming they’re on TikTok, and guys, how can you compete He? Nadella then ominously added, “The best way to innovate is to have good margins. Because that’s how you get funding.” That’s an insulting thing to say, like saying that the best way to raise happy kids is to have a good job.
Last month, Sharma earned the goodwill of many gamers by announcing that Xbox would be shutting down all of its Copilot AI features on mobile, and that it would no longer develop Copilot features for Xbox consoles at all. If these layoffs go through, it will likely be back to square one with Xbox gamers – or perhaps a few steps back from before.
Bloomberg did not have an estimate for the reportedly imminent workforce reduction at Xbox, only that it would be “major” and an Xbox spokesperson declined Bloomberg’s request for comment.
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