XBOX Confirms Historic Reset With 3,200 Layoffs, Studios Split Off & Major Leadership Changes

XBOX’s biggest shakeup in decades is no longer a rumor. While rumors have been brewing over the past few months regarding layoffs, studio closure, and more, we didn’t hear anything official, until today. Well, XBOX has officially kicked off what Asha Sharma calls the “XBOX Reset,” confirming sweeping layoffs, studio changes, and a complete overhaul of how the gaming business will operate moving forward.

XBOX begins its biggest restructuring ever

In a company-wide memo sent to employees, Sharma confirmed that approximately 3,200 positions will be slashed during fiscal year 2027, with 1,600 employees losing their jobs immediately. Rather than completing every change at once, Microsoft says the restructuring will continue throughout the year as it attempts to reduce costs and simplify operations.

The memo also confirms that Compulsion Games and Double Fine Productions will leave XBOX entirely, returning to independent ownership while keeping their intellectual property, game catalogs, and funding for upcoming projects. Meanwhile, Ninja Theory and Undead Labs are moving toward new ownership agreements designed to support development of Senua and State of Decay 3. Over in France, Arkane Studios has begun formal consultations to explore additional strategic options.

According to Sharma, XBOX’s financial performance ultimately drove the decision. She says the business currently operates with margins three to ten times lower than comparable gaming platforms and publishers. Despite investments in Game Pass, multi-platform publishing, and studio acquisitions, revenue growth failed to meet expectations while the ongoing hardware crisis further increased pressure across the industry.

Microsoft is rebuilding XBOX around fewer layers and bigger platforms

In addition to layoffs and studio split offs, Microsoft is also trimming XBOX’s management structure by reducing leadership layers from as many as 14 levels to a maximum of five, with some teams operating with only three. The company also plans to reduce vendor spending by 50%, simplify internal development tools, and consolidate engineering resources.

Another major change sees Mojang and King reporting directly to Sharma, reflecting Microsoft’s growing focus on long-term gaming platforms rather than individual releases. At the same time, Helen Chiang has been promoted to the newly created role of Chief Operating Officer, taking responsibility for XBOX’s content, hardware, services, and platform businesses under a single operating model.

Despite the scale of the restructuring, Microsoft says no publicly announced first-party XBOX games have been canceled. Sharma closed the memo by stating that XBOX expects to return to growth in 2027, describing the reset as a move toward a larger future rather than a smaller one.