Xbox to cut 3,200 jobs as Microsoft resets gaming unit

Microsoft’s Xbox division is cutting about 3,200 jobs and spinning off four studios in the largest reorganization in the unit’s history, Fortune reported. The move matters because Xbox is one of Microsoft’s weaker businesses and is being reshaped after falling gaming revenue, lower hardware sales and pressure on margins.

Xbox chief executive Asha Sharma told Fortune the business had spread its investments too widely and lost focus on its main operations. About 1,600 employees will be affected immediately, with another 1,600 cuts expected over the next year, according to Fortune.

The Xbox reductions are part of a wider Microsoft layoff plan announced Monday that is expected to affect about 2% of the company’s 228,000 workers, Fortune reported. Microsoft has previously cut jobs near the end of its fiscal year, which ended in June, but Fortune described the Xbox plan as a sharp strategic break for the gaming unit.

Xbox narrows its focus

Sharma told Fortune the new plan puts more attention on the Xbox console, which she said accounts for 80% of the division’s business. The company will also direct more of its content spending toward faster-growing areas, including Minecraft, while pulling back from smaller studios.

Xbox will shift away from a looser studio structure toward a more centralized model and remove layers of management, Fortune reported. For the first time, the division will also appoint a chief operating officer: Helen Chiang, who will oversee profit and loss across content, hardware, platform and services.

Fortune reported that major Xbox assets including King, the maker of Candy Crush, and Mojang Studios, the maker of Minecraft, will report directly to Sharma under the new structure. The four studios being spun off were not named in the report.

Weak sales and higher costs

The restructuring follows a difficult stretch for Xbox. Microsoft’s latest financial report showed quarterly gaming revenue fell 7%, including a 33% decline in Xbox hardware revenue and a 5% drop in content and services revenue, Fortune reported.

In a June note to employees cited by Fortune, Sharma said Xbox had spent more than $20 billion on content and hardware over five years, excluding Activision Blizzard, while annual revenue declined by nearly half a billion dollars. In a Monday memo to staff, she also said Xbox operating margins were three to 10 times lower than comparable businesses, according to Fortune.

Sharma told Fortune the unit needs a different business model after being hit by rising component costs, an overstretched studio system, underinvestment in its best-known franchises and heavy reliance on outside vendors. She also said a stronger Xbox could better handle hardware cost pressures.

Since taking over from longtime Xbox leader Phil Spencer in February, Sharma has lowered Game Pass prices, cut the AI Gaming Copilot feature for consoles, ended older marketing campaigns and revived exclusive titles including Gears of War: E-Day, Fortune reported.

Sharma told Fortune the turnaround will take time. She said Xbox executives are testing hardware business models such as expanded buy-now-pay-later programs and looking beyond a closed console system, including broader availability on mobile and PC.

This story draws on original reporting from Fortune.