In a public email addressed to all Xbox employees, the new face of Xbox, Asha Sharma, stated rather bluntly that Microsoft's gaming "business today is not healthy" and it will require "painful" changes to right the ship, which starts with laying off around 3,200 employees throughout Microsoft's fiscal 2027. Half of those job cuts are effective immediately, and four studios will leave Xbox to new management as well.

"I recognize that a year-long restructuring creates additional challenges. Unfortunately, it is not possible to make all the necessary changes in a single day, and I wanted to be direct about the scale," Sharma stated in a lengthy email posted to X.

Sharma was clear that the decision to restructure Microsoft's Xbox division with thousands of job cuts is not a reflection of the talent or dedication of those affected, but a necessary step following a series of missteps under previous leadership. According to Sharma, Xbox operates at margins 3-10x lower than comparable platform and publishing businesses.

In the email, she pointed to bets Microsoft made with Game Pass (which she has been critical of before), as well as a multi-platform strategy and a broader portfolio. She says those decisions "created meaningful value, but did not grow at the pace" Microsoft expected, which in turn weakened Xbox as a whole. On top of it all, the industry is facing what Sharma describes as the most severe hardware crisis in the history of Xbox, and it necessitates a hard reset.

"We now find ourselves competing not only with the largest publishers, but also with smaller independent studios. It is neither possible nor desirable to own every great independent studio. We have also learned that we are not the best home for every type of studio; in a typical year, we lost 64 cents for every dollar we invested," Sharma explains.

The mass layoffs will affect management. According to Sharma, in some cases, work at Xbox passes through up to 14 layers of management as platform teams have ballooned in size—40% later than at the start of this generation.

It falls under the saying of 'too many cooks in the kitchen', and once the bloodbath is complete, Sharma envisions there being more than five management layers, and in some cases, just three layers.

She goes on to outline other changes, but the big takeaway is that Microsoft's Xbox division is being slimmed way down in hope of being more nimble and agile in the post-reset era. However, Sharma ensures that Microsoft's gaming ambitions remain big.

"These changes are about a bigger future for Xbox, not a smaller one. The next decade of gaming will be larger, more global, and more creative than anything we've seen before. This year, we'll invest as much in Xbox as we ever have, but we'll invest with greater focus, greater discipline, and greater clarity, all in service of making Xbox where the world plays and creates," Sharma says.

There is no mention of Microsoft's next-generation console codenamed Project Helix, though everything we've heard up to this point suggests it remains on track. We'll find out. Sharma closes her message by promising that Xbox will return to growth next year. We will find that out too, in time.