What we know so far: As Microsoft faces rising component costs and declining hardware sales, Xbox's new CEO recently suggested that major changes are in store for the gaming division. While specific details are scant, reports indicate that yet more Microsoft employees will lose their jobs in the coming weeks, adding to the tens of thousands laid off over the past few years.

Although Xbox chief Asha Sharma didn't say "layoffs" in her recent memo to staff, the message's tone certainly gives off the feeling that they're coming. Sources recently informed Bloomberg that layoffs are indeed on the horizon as Microsoft tries to save its console gaming business.

In an email to employees that Microsoft later published on the Xbox blog, Sharma stated that the company overextended itself when purchasing numerous large studios to bolster its in-house content pipeline. These included Elder Scrolls owner ZeniMax, celebrated RPG studio Obsidian Entertainment, and, most famously, the $69 billion acquisition of Call of Duty publisher Activision Blizzard.

Microsoft layoffs since 2023

The Xbox CEO revealed that, excluding Activision, Microsoft's gaming division has spent more than $20 billion in the past five years on acquisitions and hardware subsidies. During the same time period, annual revenue has fallen by almost $500 million, and the company expects to end the fiscal year with a 3% decline in profit margins.

Bloomberg expects Microsoft to announce the job cuts shortly after its fiscal year ends on June 30. Although the scale of the upcoming layoffs remains unclear, Giant Bomb recently claimed that about 1,000 employees might be affected, which would bring Microsoft's total since 2023 to around 40,000.

Sharma also outlined the supply challenges the company has faced since the buildout of AI data centers has sent digital storage prices skyrocketing. When the new CEO took over in February, Microsoft was paying twice as much for Xbox storage as last fall, and prices have since doubled again. Sharma expects prices to have risen by a factor of five between Fall 2025 and the 2027 holiday season, suggesting that this remains the company's desired release window for the next Xbox console, codenamed Helix.

Rumors based on leaked chip design documents have always suggested that Helix would be expensive owing to its robust hardware. However, the RAM crisis, partially driven by Microsoft's investments in AI, is expected to push console prices into uncharted territory. In the memo, Sharma stated that Microsoft plans to "reset" the Xbox business, and in an earlier interview with Fortune (above), she explained that Xbox is exploring new business models to reach more prospective customers.

"I think we've reached a point where it will be hard to imagine that mass audiences can afford thousands of dollars to spend on a console generation," the Xbox CEO told the outlet. "And so I think we will start to see radically different business models that we never expected start to come into orbit later this year." Despite flagging sales, Sharma also confirmed that Xbox Series consoles are currently supply-constrained.

One of Sharma's first major decisions as CEO was to partially reverse last October's sharp hike to Game Pass subscription prices. Xbox chief strategy officer Matthew Ball recently admitted that the decision cost Microsoft millions of subscribers.

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The company's changing strategy also includes an attempt to pivot back toward console exclusives. Microsoft recently confirmed that Gears of War: E-Day, coming this October, and Clockwork Revolution, launching in 2027, will remain console-exclusive to Xbox indefinitely. This comes despite reports and leaked logos indicating that Xbox studio The Coalition was ready to showcase a completed PlayStation 5 version of E-Day. The two games are still set to launch on Steam.

Microsoft later explained that it is still determining its approach to exclusives, but live-service games such as Call of Duty will continue to support PlayStation and Nintendo consoles. The company will handle single-player titles on a case-by-case basis and react based on the commercial impact. Early sales numbers from the United Kingdom suggest that Forza Horizon 6, coming to PlayStation 5 later this year, has already boosted Xbox Series sales.

Ubisoft is also expected to announce layoffs soon. Sources informed Insider Gaming and Game Developer that around 380 roles are set to be eliminated at the publisher's Belgrade and Winnipeg studios. Ubisoft Belgrade will refocus solely on the Rainbow Six franchise, while Winnipeg primarily develops the company's proprietary Anvil and Snowdrop graphics engines. Controversially, Ubisoft also placed the news under embargo when it informed outlets.