The gaming division of the Redmond-based tech giant is preparing for major changes, as revealed in a letter from senior management.

Xbox CEO Asha Sharma and Xbox Executive Vice President and Chief Content Officer Matt Booty published an internal letter addressed to Xbox employees. In the letter, they reviewed the company’s first 100 days under new leadership, the challenges facing the Xbox division, and the planned “restart” aimed at building a stronger Xbox. The letter paints a bleak picture. Despite investing more than $20 billion over the past five years – excluding Activision Blizzard King -, the division’s core revenue has declined. The fiscal year ending June 30 is expected to close with a margin of approximately 3%, suggesting that significant restructuring may be necessary. Jason Schreier, a Bloomberg editor, also wrote that Xbox is planning significant layoffs shortly after the close of the fiscal year. He cited sources familiar with the company’s strategy and expected cost cuts in marketing and other areas of the division. Let’s take a look at the letter:

“Over the first 100 days together, we have started to revive Xbox. Our platform teams have shipped more updates in the last 100 days than in the previous year combined. We now have more active partners on Xbox than ever before. Our Game Pass team set to work improving our offerings, and after eight months of decline, our service has started to grow again. Through Player Voice, we have a channel to hear directly from players, creators, and developers 24/7. Through the Xbox Games Showcase and the return of FanFest, we have brought together hundreds of millions of fans globally. We reintroduced exclusives with Gears of War: E-Day in 2026 and Clockwork Revolution in 2027. Players can expect signature exclusives from us every year. Meanwhile, Playground Games showed us that well-established franchises can reach new heights.

These are preliminary results, but they demonstrate what is possible when we work quickly, maintain close ties with our community, and unite behind a shared vision. We have made mistakes and will continue to do so, but what matters is that we listen, learn, and adjust our course as needed. Remember, our fans are rooting for us. Now, we begin the next 100 days. It’s important to be both optimistic and realistic as we work to reset the business. Here are the realities that we need to navigate:

First, over 1 billion players choose to play Xbox and our games each year for a total of 72 billion hours across console, PC, mobile, and streaming – excluding much of China and a few other properties. Our franchises are among the largest and most beloved worldwide, and they are breaking records in TV and film. Going forward, our competition is for people’s attention. There are more great games, TV series, franchises, creators, content formats, apps, and so on than ever before. Second, we will end this fiscal year with an accountability margin of about 3%, down year-over-year. Over the past five years, we have spent over $20 billion on ongoing investments in our content, platform, and hardware subsidy. However, our annual revenue has declined by nearly half a billion during that time. This cannot continue going forward.

#3: We are experiencing a crisis with hardware components. When I became CEO in February, the price we paid for console storage components was more than twice what we paid last fall. Since then, these costs have doubled again. As we plan for the 2027 holiday season, we expect another significant increase, which will bring us to over five times the price we paid only two years earlier. Memory costs have followed a similar trajectory. While the entire industry is facing a component shortage, we believe that we have been affected more severely than many of our peers due to the decisions we have made over the past five years. Currently, we are unable to produce enough consoles to meet demand, so we need a new business model and partnerships for hardware, while remaining committed to Helix.

Fourth, we expanded our studio system when we needed a content pipeline to support multiple strategies across subscriptions, streaming, and devices. In the process, we found ourselves overextended as we executed changing strategies in a landscape with more readily available content. We are fortunate stewards of industry-defining franchises with enormous potential and player demand. However, we have not adequately funded these franchises to compete and win. At the same time, as we saw at Showcase this past weekend, a reliable pipeline of first- and third-party exclusives and new IP is critical to our success. We must reassess the balance between these priorities and our investments for the next five years.

#5: Our current platform infrastructure is not built for the battle ahead. Our systems are overly complex and span hundreds of dependencies, hindering our ability to move quickly. We’ve become too reliant on vendors to operate our systems, and we must become more self-reliant as an engineering team to build for the future. We must increase the value we provide to players while reducing the time it takes to do so. Going forward, we will evolve and rebuild our stack, looking at capabilities across all of Xbox and potential mergers and acquisitions to help us win in hardware, PC, mobile, and streaming.

For some of you, these realities may be surprising or even frustrating. We won’t succeed by hiding hard truths, nor will we succeed by doing the same thing and expecting different results. As with the “everyday wins” mentality of the first 100 days, we will work together to make progress in hardware, content, experience, and services. Xbox is one of the few places where people come not just to play but also to connect with others and create memories. With the console at the center of how we define our showcase experiences, Windows as one of the world’s largest gaming platforms, and an impressive portfolio of games as one of the world’s largest publishers, we have the foundation in place. Let’s reset for a stronger Xbox and build the #1 gaming and entertainment company” – wrote Sharma and Booty.

So, how many people will lose their jobs this time?

Source: Gematsu, Microsoft, Bloomberg