Seattle, July 13, 2026, 03:36 PDT
Microsoft NASDAQ:MSFT is letting go of Xbox staff at a rate far above the unit’s share of company revenue, based on the latest numbers. Xbox made up a third, or 1,600, of the 4,800 job cuts, or 33.3%. Yet gaming only brought in 6.4% of Microsoft’s revenue in the March quarter.
The gap is key as Microsoft’s biggest growth drivers keep growing. Revenue overall was up 18% this quarter, with Azure up 40%. But gaming revenue slid 7% and Xbox hardware tumbled 33%. The layoffs look like Microsoft is trimming back on weaker consumer segments but trying not to stall the cloud and AI units that are lifting results.
| Investor comparison | Figure |
|---|---|
| Xbox took a third of Microsoft’s latest job cuts | 33.3% |
| Gaming made up just 6.4% of revenue last quarter | 6.4% |
| Layoffs in gaming ran 5.2 times above its sales share | 5.2 times |
The first round cuts half of the planned 3,200 Xbox jobs. The Wall Street Journal said another 1,250 layoffs are expected before the fiscal year ends, while Polygon reported about 350 cuts come from four game studios dropping out of Microsoft. Bloomberg’s Jason Schreier reported Friday that “more than 1,200 job cuts are still looming,” with staff unsure who will be affected. The Wall Street Journal
Xbox boss Asha Sharma told staff in a memo, “Our business today is not healthy.” She said profit margins at Xbox are three to 10 times lower than similar platform or publishing firms. Growth from Game Pass, branching out to more platforms, and a bigger content lineup hasn’t matched expectations. Sharma said since 2018, the company’s studio expansion has lost 64 cents for each dollar invested most years. XBOX Wire
Compulsion Games and Double Fine Productions are set to go independent. Ninja Theory and Undead Labs will shift to new owners. The moves hand off some future funding and development risk from Microsoft, but keep franchises and current projects alive for now.
Gil Luria, head of tech research at D.A. Davidson, said as more demands crowd people’s attention, gaming loses out to video and social media. Microsoft President Brad Smith said companies need to “remain healthy in order to be successful.” Joost van Dreunen, an NYU professor who tracks the games industry, pointed to rising chip costs from AI demand as a hit to console margins. kuow.org
Xbox has trailed Sony Group NYSE:SONY and Nintendo (TYO:7974) in console sales, and has started to push more of its games onto competing platforms. That opens up a bigger market for its software, but eats into the old idea of locking players to Xbox with exclusives. The latest cuts show Microsoft is shifting to focus on wider reach and returns rather than just pushing console numbers post-Activision Blizzard deal.
But there’s a risk, union reps at id Software told The Verge. Fewer staff could mean lower game quality and possible delays. That could thin out the Game Pass lineup, dragging on engagement and software sales. Xbox might end up smaller, with economics that don’t improve.
Microsoft is due to report fiscal Q4 earnings on July 29. The company said Xbox content and services revenue is set to drop by low teens percent, about 11% to 13%, and expects hardware sales to fall too. Most of the restructuring won’t hit until fiscal 2027, so investors may focus more on the outlook for gaming costs and releases than just the June quarter numbers.
Microsoft stock was up about 0.2% to $385.10 before the open Monday. Now investors are asking if Xbox can take cuts that are five times its revenue share and still hold onto the top games it needs to lift sales.
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