Xbox reportedly prepares for layoffs, as the new CEO outlines business reset plans and challenges ahead.

Microsoft's gaming division, Xbox, is reportedly preparing for layoffs as it enters the next 100 days of what the company describes as a major business reset under newly appointed CEO Asha Sharma.

In an Xbox Wire post, Sharma detailed the challenges facing the company in the coming quarter. These include reversing declining revenue, addressing rising hardware costs, and restructuring parts of the business to improve efficiency.

While the lengthy post did not explicitly mention layoffs, it strongly suggested difficult decisions may lie ahead. Sharma noted that, "It is important to have both optimism and realism as we work to reset the business," before outlining a series of significant challenges the company must confront.

The layoffs report comes from Bloomberg, which stated that the cuts are expected to begin shortly after Microsoft's fiscal year ends on 30 June. According to the report, the layoffs will affect the marketing department alongside several other business divisions, although the overall scale of the job cuts remains unclear.

Why is Xbox reportedly undergoing layoffs?

If the reports prove accurate, the reasons behind the anticipated layoffs were laid out plainly in Xbox's own statement. Sharma identified several major issues facing the business, including increasing competition, declining revenue, rising hardware costs, strategic overextension, and ageing platform infrastructure that requires rebuilding.

"Competition is attention," Sharma said, explaining that although Xbox continues to grow and now reaches more than a billion players, it must adapt to an entertainment landscape that increasingly competes for consumers' time. She pointed to television, major franchises, content creators and other forms of entertainment as rivals in the battle for audience engagement.

The company's financial pressures were also highlighted:

"We will end this fiscal year at about a 3% accountability margin, down year-over-year. In the past five years, Xbox has channelled over $20 billion into ongoing investments in our content, platform, and hardware subsidy, but our annual revenue has declined by nearly half a billion during that time."

Combined with rising hardware costs, these financial challenges are expected to place even greater pressure on future investments. Sharma revealed that Xbox anticipates paying five times more for console storage components than it did last autumn, as further increases are expected ahead of the 2027 holiday season.

Sharma also acknowledged that Xbox had expanded its studios and operations to support multiple strategies across subscriptions, cloud streaming and various devices, resulting in the company becoming overstretched.

"We need to reassess the balance between these and our investment priorities for the next five years," she said.

In addition, Xbox plans to modernise what Sharma described as inadequate platform infrastructure.

What has Xbox done under Sharma's leadership so far?

Since taking over as Xbox CEO, Sharma has embarked on a broad effort to reshape Microsoft's gaming division. Changes introduced during her first quarter reportedly include reductions to Game Pass subscription costs, a refreshed logo and a company name change, plus the reveal of Project Helix, which were largely positively received by the community.

Now, Sharma appears set to enter a far more difficult phase of Xbox's restructuring efforts.