Asha Sharma Explains Why Xbox Needs a Healthier Core Business

Xbox chief executive officer (CEO), Asha Sharma, says rebuilding Microsoft's gaming business will take time after the company launched the biggest restructuring in Xbox's history. The overhaul includes 3.2K layoffs, a leadership reshuffle, four studios leaving Xbox, and a broader strategy aimed at restoring profitability.

Speaking to Fortune, Sharma stated, "I think our core has to be healthy," adding that fixing the core business is "necessary but not sufficient" for Xbox's long-term recovery.

The restructuring begins with 1.6K job cuts immediately. Another 1.6K roles will be eliminated during Microsoft's 2027 fiscal year (FY). Microsoft is also spinning off four studios while simplifying Xbox's management structure.

Xbox Resets Business After Years of Weaker Performance

In a memo to employees, Sharma pointed out that Xbox's operating margins are three to ten times lower than comparable platform and publishing businesses. She also explained that the company entered the current console generation with a smaller install base and higher costs.

Microsoft invested more than $20B USD in content and hardware over the past five years, excluding the Activision Blizzard acquisition. Despite that spending, annual revenue declined by nearly $500M.

Sharma mentioned that investments in Game Pass, multiplatform publishing, and studio expansion created value but did not grow as expected. "We simply spread ourselves too thin," she told Fortune.

The company is now shifting investment toward larger franchises, including Minecraft. Sharma also said Xbox is not the best home for every studio, noting that the business lost 64 cents for every dollar invested in a typical year. Compulsion Games and Double Fine will return to independent management. Ninja Theory and Undead Labs are moving toward new ownership, while Arkane is reviewing strategic options in France.

However, Microsoft said no publicly announced first-party games have been canceled.

Hardware Strategy Changes as AI Drives Memory Shortages

Sharma also pointed to the industry's hardware crisis.

Meanwhile, Reuters recently reported that growing artificial intelligence (AI) infrastructure demand has created a global memory chip shortage, pushing up DRAM prices and increasing console manufacturing costs. Xbox plans to respond with new hardware financing options, including buy-now, pay-later programs, while continuing to expand across PC and mobile.

The restructuring also creates Xbox's first chief operating officer (COO) role. Helen Chiang will oversee profit and loss across content, platform, hardware, and services. Mojang Studios and King will now report directly to Sharma as Microsoft strengthens oversight of its largest gaming businesses.

The changes follow Microsoft's nearly $70B Activision Blizzard acquisition and multiple rounds of layoffs since 2023. Studios including Obsidian and id Software have been affected, while IO Interactive confirmed it is closing its Istanbul studio after Xbox withdrew funding for Project Fantasy.

Altogether, Microsoft now expects the reset to position Xbox for a return to growth in 2027 through a leaner structure and more disciplined investment.