According to Bloomberg, Microsoft's (MSFT) brand Xbox plans to lay off 3,200 employees within the next year, accounting for about 20% of its total workforce. This move is part of a major restructuring aimed at revitalizing its struggling gaming business, while the company will also sell four of its game studios and is preparing to divest a fifth studio. The company's stock price fell by 0.96%, closing at $386.74.

Profit margins three to ten times lower than peers

The report noted that Xbox CEO Asha Sharma stated in an internal letter on Monday (the 6th) that the company's current business is not healthy, indicating that Xbox's profit margins are three to ten times lower than those of similar companies, and that it "must be restructured." According to the letter, the company will lay off 1,600 employees on Monday, with the remaining staff to be gradually reduced over the next 12 months.

Additionally, Microsoft will lay off another 3,200 employees outside of Xbox, primarily in the sales department. According to Bloomberg, HR director Amy Coleman informed employees that the layoffs are due to changes in product construction and shifts in customer demand. In summary, the total number of layoffs announced by the company on Monday is 6,400, which is less than 3% of the total workforce of approximately 228,000. Microsoft also conducted two rounds of large-scale layoffs last year, affecting about 15,000 employees, and Coleman hinted that more departments will face similar restructuring in the future.

Will sell Ninja Theory and Undead Labs

As part of this restructuring, Xbox will sell the studios Ninja Theory and Undead Labs, during which both studios will continue to collaborate with Xbox on current game projects "Senua" and "State of Decay 3." The other two studios, Double Fine and Compulsion Games, will be spun off and return to private ownership under their founders. Sharma stated that the two studios will receive startup funding and will fully own the intellectual property they develop, including catalogs of previous game works.

Furthermore, Xbox will also negotiate with Arkane Studios located in France to "review potential strategic options" for selling or spinning off the studio in the coming months. However, the process has not yet begun, and due to France's strict labor regulations, it will take longer than for other studios.

Losing 64 cents for every dollar invested

It is noteworthy that all five studios were acquired during the tenure of former Xbox CEO Phil Spencer, who initiated a wave of acquisitions over the past decade, acquiring a large number of game developers and publishers, including the $69 billion acquisition of Activision Blizzard, in hopes of boosting the subscription service Xbox Game Pass, but the growth of the service has stagnated.

Sharma pointed out that these acquisitions have not grown at the expected pace and added that, on average, Xbox loses 64 cents for every dollar invested in a typical year. Although she also stated that no publicly announced projects will be canceled, layoffs will occur throughout the organization, including studios retained by Xbox, to focus on higher-priority projects

Hardware spending in 2027 will be five times higher than in 2024

Sharma stated that Xbox's goal is to streamline operations and reinvest resources into larger-scale projects, marking one of her most significant measures since taking over as CEO in February. At that time, she described herself as being in a difficult situation, as despite significant investments in Xbox, the division struggled to launch popular games, and hardware sales saw a significant decline.

Last month, Sharma noted in an internal letter that Xbox's "responsibility profit margin" (a metric used by Microsoft to reflect profitability) had dropped to 3%, with annual revenue also experiencing a substantial decline. Additionally, due to the global AI chip shortage, game hardware manufacturers have raised prices this year, and the division expects spending on memory and storage in 2027 to be five times that of 2024.

Aiming for one billion daily players

Furthermore, Sharma pointed out that Xbox will significantly reduce its platform division to decrease management layers and accelerate product release speed, while implementing several other changes to increase investment in major titles like Minecraft. These measures include adjusting reporting structures and shifting to a more centralized studio model, with the hope that Xbox will reach a target of one billion daily players.

Since 2023, Xbox has laid off thousands of employees and canceled many projects. Even subsidiaries that produce popular games like Candy Crush and Overwatch have been affected by layoffs. According to previous reports from Bloomberg, Double Fine, Compulsion, and Ninja Theory are all in discussions with Xbox to avoid being placed on the studio closure list