The new Xbox CEO Asha Sharma and head of Xbox Game Studios Matt Booty are reportedly planning major job cuts across the gaming business next month. This marks a new chapter for Sharma, in which she plans to "reset the business". A barely-coded term for 'lay off a lot of people'.

"It is important to have both optimism and realism as we work to reset the business," Sharma and Booty say in an open letter marking her first 100 days in the new role. "We will end this fiscal year at about a 3% accountability margin, down year-over-year. 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."

Previous CEO Phil Spencer was aiming for a 30% accountability margin, which shows just how far below their target Xbox are performing. That number was one of the justifications for all of the layoffs, the game cancellations, and the studio closures of recent years. Also, if you include the Activision Blizzard King buyout (a purchase Sharma was openly questioning just last week) and that investment number jumps to nearly $80 billion.

"When I joined as CEO in February, the price we paid for console storage components was over 2x as high as we paid last fall," Sharma continues. "These costs have since doubled again. And as we plan for the 2027 holiday season, we expect another significant increase, taking us over 5x the prices we paid only two years earlier. Memory costs have followed a broadly similar trajectory."

I'll admit, I can't read that section without picturing the I Think You Should Leave hotdog meme, what with the massive increase in component costs being driven by the billions spent by tech companies investing in AI infrastructure. Of which, Microsoft is one of the biggest spenders, just in April announcing plans to spend a further $190 billion on its cloud and datacentre infrastructure.

Image credit: The Initiative

Those cost increases are particularly pertinent to Xbox's console business, as apparently they "are currently unable to make as many consoles as players want to buy" and it's informing plans for the next generation machine, the Helix. This is somewhat relevant to us PC gamers, in that all reports are that the Helix is basically a living room PC.

The section of the letter that is most revealing of what is reported to be coming talks about Xbox's years of acquisitions. "We expanded our studio system when we needed a pipeline of content to meet multiple strategies across subscription, streaming, and devices," Booty and Sharma write. "In the process, we have found ourselves over extended as we executed on changing strategies in a landscape of more readily available content."

"Over extended" and "reset the business" are the most telling lines across this letter.

"We are the fortunate stewards of industry-defining franchises that have enormous potential and player demand, but we have not adequately funded them to compete and win," Booty and Sharma continue. "At the same time, as we saw this past weekend at Showcase, a reliable pipeline of first- and third-party exclusives and new IP are critical to our success. We need to reassess the balance between these and our investment priorities for the next 5 years."

While vague, that seems to suggest a further doubling down on a few first-party series, like Halo and Gears of War, and leaning harder on third-party developers to deliver variety.

Finally, Booty and Sharma write that the platform infrastructure "is not built for the battle ahead" because "their systems are overly complex, spanning hundreds of dependencies, which hinders our ability to move fast." Again, this reads as coded language for layoffs. To me, it sounds like they're talking about firing teams they see as complicating the process of developing and publishing games. We've all been through too many years of this approach to not see the phrase "move fast" and not silently add "and break things".

While the phrase layoffs doesn't appear in the open letter, according to sources talking to Bloomberg, that is very much the plan. Apparently the cuts will take place shortly after the close of Microsoft's financial year at the end of June.

It's obvious Xbox have badly mishandled development and publishing over the past decade. Despite acquiring excellent studios as part of the spending spree of the last ten years, developers have struggled to get first-party games out of the door. Games like Everwild and Perfect Dark were in development for six years before they were shown to the public and even then they were cancelled before anyone got a chance to play them. I can well believe that Xbox is an unfocused company that has become overly complicated and wasteful as they chased down consoles, cloud streaming, multiplatform releases, handhelds, Game Pass, mega acquisitions, live service games, MMOs, and every other whim of their executives. As the new CEO in the chair can well look around and say 'This is too much of a mess, let's start again', but as ever, the actual cost of that "reset" will fall on the shoulders of employees who had nothing to do with those decisions.

It's particularly galling to see this "look at what the other guys did" letter being co-authored by Matt Booty, who has been an executive within Microsoft and part of this sprawling strategy for years. He was the one who praised smaller prestige games the day after overseeing the closure of Hi-Fi Rush maker Tango Gameworks – one of the few games Xbox have released that fits that bill.

Once again, Xbox are explaining why to be more successful, actually, what they must do is fire a stack of people who make the games they sell, who publish the games they sell, who market the games they sell. I hope it works, not for the hapless execs, but so I don't find myself back here in 12 months time writing about another reset perfectly timed to buoy shareholders at the close of the next financial year.