Xbox CEO Asha Sharma announces 3,200 layoffs and divestiture of four studios in major restructuring

Xbox CEO Asha Sharma announced a major restructuring on Monday that includes 3,200 job cuts and the divestiture of four game studios, according to an account of the internal changes reported by The Hollywood Reporter. The company said the changes are intended to address problems in Xbox’s current business model and improve financial performance, and it framed the effort as a reset rather than a routine reorganization.

In the memo to employees described by The Hollywood Reporter, Sharma said the Xbox business today is “not healthy,” adding that the unit is operating at margins that are “3-10x lower than comparable platform and publishing businesses.” The report said she called for a reset of Xbox and characterized the planned move as the “most significant restructure in Xbox history,” with the first portion of the layoffs expected immediately.

The planned reductions total 3,200 positions, with The Hollywood Reporter reporting that 1,600 of the layoffs would occur that day. The move is tied to an effort that the report describes as trimming costs and changing how Xbox manages its studio portfolio, including a decision to divest several long-running development teams.

The studios listed for divestiture in the report are Compulsion Games, Double Fine Productions, Ninja Theory, and Undead Labs. The report associated Compulsion Games with We Happy Few and South of Midnight, Double Fine with games including The creator’s Keeper and PsychoNauts, Ninja Theory with DmC: Devil May Cry and Hellblade: Senua’s Sacrifice, and Undead Labs with State of Decay, describing the studio lineup being separated as part of the restructuring.

The Hollywood Reporter also connected Xbox’s current situation to years of acquisitions and expansion that the report says helped enlarge the company’s studio footprint. It quoted Joost van Dreunen, a professor at NYU Stern School of Business, saying his research counts 15 acquisitions over 13 years and pointing to Microsoft’s $69 billion purchase of Activision Blizzard as a prominent example that expanded the balance sheet.

Beyond the studio and workforce changes, the restructuring is expected to affect how Xbox develops and publishes games under its umbrella, with divestiture processes typically involving changes in ownership, staffing, and production timelines. The report said Sharma would spend the next year executing the changes, while additional details would follow through internal planning and operational transitions.

Earlier reporting also placed the Xbox turnaround in the context of Microsoft leadership pushing for sustainability rather than ongoing subsidy. GeekWire previously reported comments from Microsoft CEO Satya Nadella stating that Xbox must become a sustainable business, a theme that aligns with Sharma’s emphasis on margins in her memo described by The Hollywood Reporter.

As Xbox begins implementing the immediate 1,600 job cuts and proceeds with the remainder of the 3,200 total reductions, studio divestitures for Compulsion Games, Double Fine Productions, Ninja Theory, and Undead Labs represent the next major operational step. The practical next stage will be how those studios are transferred and how existing development and publishing obligations are handled during ownership change, layoffs, and restructuring of Xbox’s portfolio operations.