Xbox confirms it will lay off 3,200 employees throughout Fiscal Year 2027: “We will reset our platform”
The division is closing four of its studios and expects more layoffs.
What had been circulating as rumors for weeks is now a reality. Microsoft will lay off a total of 4,800 employees, 30% of whom are from the Xbox division. In addition to affecting the company’s gaming division, this also marks the departure of four of the studios under its umbrella.
Both Double Fine (Psychonauts 2) and Compulsion Games (South of Midnight) will become independent, returning to their founders (Tim Schafer and Guillaume Provost, respectively). Meanwhile, both Ninja Theory (Hellblade) and Undead Labs (State of Decay) will be sold, although it has been confirmed that neither Senua nor State of Decay 3 will be canceled.
These aren’t the only layoffs at Xbox, as this round of cuts will affect about 1,600 employees, representing approximately 8% of the division. According to an internal memo—also posted by Xbox CEO Asha Sharma on her X account (formerly Twitter)—the layoffs are expected to continue through FY27, affecting approximately 3,200 employees.
This is an important email I sent today to all employees at XBOX:
— ASHA (@asha_shar) July 6, 2026
Team,
We are beginning the most significant restructure in XBOX history. After careful consideration, I've made the difficult decision to reduce our team by approximately 3,200 throughout FY27. This will include…
Layoffs and Restructuring
Throughout the memo, Sharma reveals several of the challenges Xbox is currently facing, ranging from the excessive acquisition of studios since 2018, to how fragmented management has become across the entire company, to services like Game Pass that did not grow at the expected rate, and teams that ended up growing far beyond what was necessary. Among the division’s plans is the creation of the position of Chief Operating Officer to assume “P&L responsibility across content, hardware, platform, and services,” with Helen Chiang filling this role, while Mojang and King—the two studios with the highest number of monthly active players—will report directly to Sharma.
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We’ll see how all these cuts end up affecting the company. Sharma notes that “These changes are about a bigger future for Xbox, not a smaller one.”
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