Microsoft needs to "reset Xbox," says Asha Sharma, as the company lays off 3,200 employees

Xbox is set to lay off a total of approximately 3,200 employees throughout 2027's fiscal year - which ends on June 30, 2027. An estimated 1,600 roles will be made redundant today as the company looks to "reset Xbox."

In an email sent to the Xbox team that has since been shared on X, CEO Asha Sharma writes that "our business today is not healthy." Alongside the role redundancies, four of the company's studios "will leave Xbox to new management."

Sharma goes on to state that "[Xbox] is operating at margins that are 3 to 10x lower than comparable platform and publishing businesses." Discussing Game Pass and other forms of content, she notes that they "did not grow at the pace we expected."

Compulsion Games, which shipped action-adventure game South of Midnight last year, and Double Fine Productions of Psychonauts fame will "return to management and transition to independent studios with their IP, catalog, and runway for their next games." Ninja Theory (Senua) and Undead Labs (State of Decay 3) have "entered into terms to join new ownership with funding to complete and grow Senua and State of Decay 3." Arkane's management will go into consultation to "review potential strategic options."

As reported by Bloomberg, Bethesda will also see a shift, and will move to focus on its largest franchises overall, including Doom, Fallout, Quake, The Elder Scrolls, and Wolfenstein.

The email goes on to cover further reductions or investment shifting, but notes that "none of our first-party publicly announced games or projects are being cancelled as part of these reductions." It also discusses changes in the company's management and streamlining of how Xbox works across its tools.

Following the post, Compulsion Games published a note on X regarding the return to independent management, writing that "As part of this transition, we will retain the rights to Contrast, We Happy Few, and our award-winning South of Midnight."

Double Fine Productions also shared its thoughts on Bluesky, stating that they'd been "deeply touched" by the messages received, and will share "more news soon on what comes next."

This story is developing, so we'll update it as we learn more.