Xbox layoffs begin this week as Microsoft's 'Reset' takes hold

The cuts begin Tuesday

Microsoft's Xbox division is bracing for a significant round of redundancies starting on Tuesday 7 July 2026, according to The Verge's Tom Warren. The layoffs arrive just days after the close of Microsoft's fiscal year on 30 June, and follow a bluntly worded internal strategy memo published on 10 June under the title Next 100 Days: Xbox Reset. The cuts could form part of up to 5,500 redundancies across Microsoft more broadly, according to Kotaku, though Microsoft has not confirmed a specific figure. For context, Microsoft employs approximately 220,000 people worldwide, meaning fewer than one in 40 staff are expected to be affected.

Business Insider reported that the reductions will span Microsoft's sales, consulting, and Xbox gaming divisions. This round is expected to be smaller than previous waves, partly because a voluntary retirement programme earlier this year — open to US-based workers at level 67 or below whose combined age and tenure totalled at least 70 years — already reduced headcount without forced exits.

What the memo actually says

The Xbox Reset memo, co-signed by Xbox CEO Asha Sharma and Chief Content Officer Matt Booty, did not soften its language. The pair wrote plainly:

"Excluding Activision Blizzard King, over the past five years, we have spent over $20 billion on ongoing investments in our content, platform, and hardware subsidy, but our annual revenue has declined nearly half a billion during that time. Going forward, this cannot continue."

The numbers behind that admission are stark. Gaming revenue dropped to $5.3 billion from $5.7 billion, and hardware revenue fell by 33%. Xbox will end the fiscal year at roughly a 3% "accountability margin" — an internal profitability metric. The memo also flagged a hardware component crisis: storage costs have more than doubled since Sharma joined in February and are forecast to reach five times their 2024 levels by the 2027 holiday season. Sharma wrote directly: "We are currently unable to make as many consoles as players want to buy, and we need a new business model and partnerships for hardware as we remain committed to Helix."

Five studios facing closure or sale

According to combined reporting from Bloomberg and GamesBeat, Microsoft is preparing to close or sell five first-party studios:

• Ninja Theory (Cambridge, UK) — The Hellblade developer's employees were called to a meeting on Monday and informed their jobs were ending, just nine days after the studio appeared at the Xbox Games Showcase to announce Senua, the third entry in the franchise. The team is reportedly attempting to find a buyer that could keep them operational.
• Arkane Lyon (France) — The Dishonored and Deathloop studio is under consideration for closure or sale, according to The Verge. Sources suggest Xbox also wants to cancel Marvel's Blade, with the game already having slipped from a 2026 to a late 2027 internal ship date and reportedly running over budget.
• Double Fine (San Francisco) — The Psychonauts studio is in "active negotiations" with Xbox to spin off and return to independent status, according to GamesBeat.
• Compulsion Games (Montreal) — The Peabody Award-winning studio behind South of Midnight and We Happy Few could see more than 100 workers affected, per Kotaku. Several staff have already begun posting publicly about seeking new roles.
• Undead Labs (Seattle) — The State of Decay developer has 110 jobs at risk, according to GamesBeat — notable given that State of Decay 3 is still slated for 2027 and received a new trailer at June's Xbox Games Showcase.

One studio emphatically not on the list is Obsidian Entertainment. After a report on 2 July suggested the studio was in negotiations to avoid closure, Bloomberg's Jason Schreier quickly confirmed that Obsidian is not shutting down and that Xbox is keeping it.

Leadership changes and union pushback

The restructuring has already claimed senior figures. Xbox Game Studios head Craig Duncan is stepping down, with his portfolio — which includes Halo Studios, The Coalition, Playground Games, Rare, and Obsidian — temporarily reporting to Booty. Duncan's departure was quickly followed by that of Xbox Game Studios chief of staff Louise O'Connor.

Unionised workers across Microsoft's gaming divisions have mounted a coordinated response. Frank Arce, vice president for CWA District 9, held a press conference condemning the cuts, saying: "The money is there, leadership is simply choosing where it goes and who pays." Mahreen Fatima, a senior environment artist on Diablo 4, pointed to Microsoft CEO Satya Nadella's $96.5 million annual compensation and the company's billions in AI infrastructure investment, adding: "They're just choosing not to protect us." Union demands include advance notice of redundancies, two years of recall rights, and hiring freezes to protect existing roles.

A Microsoft spokesperson told Bloomberg: "We're not reducing our overall investment in games. We expect to invest about the same in content as we did last year. What's changing is where we're investing and the kinds of projects we're backing."

What's still coming from Xbox

Despite the turbulence, Microsoft insists its hardware roadmap is intact. The Xbox Series X25 — a limited-edition translucent green console revealed at FanFest on 7 June — remains on schedule for a November 2026 launch alongside Gears of War: E-Day on 6 October, confirmed as an Xbox and PC exclusive after a reported PS5 version was cancelled. Further ahead, Project Helix — Microsoft's next-generation console-PC hybrid, confirmed at GDC in March 2026 — is targeting a 2027 holiday launch, with developer kits expected that year. No price has been confirmed, though analyst forecasts ahead of the Reset memo projected a launch price of between $999 and $1,500.

This is the latest in a series of damaging cuts to Microsoft's games division since the Activision Blizzard King acquisition closed: roughly 1,900 roles went in January 2024, around 650 more in September 2024, and approximately 9,000 Microsoft-wide in July 2025. Whether the Reset memo marks the end of that cycle — or simply its latest chapter — remains to be seen.