Xbox CEO Asha Sharma has addressed the company's recent wave of layoffs, acknowledging that Microsoft expanded too aggressively in recent years and lost focus on its core gaming business.
Speaking in an interview with Fortune, Sharma said Xbox made several strategic investments that ultimately failed to deliver the expected results, forcing the company to restructure its gaming division.
The comments come after Microsoft confirmed approximately 1,600 job cuts across Xbox, with additional layoffs expected over the next fiscal year.
"We Simply Spread Ourselves Too Thin"
According to Sharma, Xbox's efforts to grow through acquisitions and new initiatives came at the expense of its primary business.
"In order to grow, we made a bunch of bets … and as we did that, we inherently didn't focus on the core business," Sharma said.
She added that resource allocation ultimately reflected those priorities.
"The number one measure of your strategy is what you put your resources behind, and we simply spread ourselves too thin."
The remarks represent one of Microsoft's clearest acknowledgments yet that its previous growth strategy failed to meet expectations.
Four Xbox Studios Affected
As part of the restructuring, Sharma confirmed significant changes involving several Xbox Game Studios.
According to the announcement:
- Compulsion Games will become an independent studio.
- Double Fine Productions will also regain its independence.
- Ninja Theory is being sold to another company.
- Undead Labs is also being sold.
Meanwhile, Arkane Studios remains under review. Sharma said Microsoft is consulting with the studio while evaluating several strategic options for its future, though no final decision has been announced.
More Layoffs Planned
Sharma also confirmed that additional workforce reductions are planned before the end of Microsoft's current fiscal year on June 30, 2027.
The company expects approximately 1,600 more positions to be eliminated during that period.
In a company-wide email, Sharma acknowledged the impact these decisions would have on employees.
"I know this is painful. These changes will directly affect people who have poured their creativity into building Xbox."
She added that the layoffs should not be viewed as a reflection of employees' talent or dedication.
"Today's decisions do not reflect their talent or dedication."
Xbox Undergoing Major Restructuring
Beyond staffing changes, Xbox is implementing a significant organizational overhaul.
Sharma said the division will reduce layers of management in an effort to speed up decision-making and improve accountability. Going forward, Microsoft aims to limit organizational structures to a maximum of five management levels between development studios and executive leadership, with some teams operating under as few as three.
The restructuring also includes leadership changes.
Helen Chiang, previously known for her work across Xbox Live and Mojang, has been appointed as Xbox's new Chief Operating Officer following the retirement of Dave McCarthy after 17 years with Microsoft.
In her new role, Chiang will oversee the division's financial performance, including responsibility for profit and loss across Xbox's business.
A Reset for Xbox
Sharma said Xbox's expansion strategy continued even as growth slowed, leaving the company with rising costs and a weakening core business.
She also pointed to broader challenges affecting the gaming industry, including what she described as a severe hardware crisis.
"As that happened, our core business weakened, and we added more teams, more investment, and more time, hoping for a better outcome. And now the industry is facing the most severe hardware crisis in its history. We must reset Xbox."
The restructuring marks one of the most significant changes in Xbox's history, as Microsoft attempts to streamline its gaming division while refocusing on long-term sustainability. The success of that strategy will become clearer as the company moves through the next fiscal year.