Xbox to hold major layoffs as profit margins drop to 3%

UPDATE: Microsoft has confirmed the layoffs, publishing the memo on the Xbox Wire. Xbox's CEO Asha Sharma confirms that the division will have a 3% accountability margin (similar to profit) for the entire Fiscal Year 2026 period.

Xbox will conduct significant layoffs as part of a major business reset, sources tell Bloomberg's Jason Schreier.

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Not so long ago, new Xbox CEO Asha Sharma said that Microsoft will reset the gaming business. The CEO has gone to say that Xbox has to look at ways to make the next console more affordable, stressing how much hardware production costs have increased--over 7.5x, Sharma says. Now it's been revealed that Microsoft is planning to hold heavy layoffs at Xbox as part of this reset.

According to a memo seen by Bloomberg, Xbox's accountability margin--which is a measure of profit--dropped to just 3%. We're not sure if that is a quarterly figure or an annual figure, but we do know that Xbox had an accountability margin of 12% for the first 9 months of FY22 (July 2021 - March 2022). That was years ago, before Microsoft made the most expensive tech acquisition of all time buy purchasing Activision for nearly $70 billion.

"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," Sharma said in the memo.

Sharma continues, saying that Microsoft must scale back its investments in the next 5 years:

"We expanded our studio system when we needed a pipeline of content to meet multiple strategies across subscription, streaming and devices.

"In the process, we have found ourselves over-extended as we executed on changing strategies in a landscape of more readily available content. 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.

"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."