The Xbox Layoffs Are NOT Over — Three More Rounds Are Coming, and 1,868 People Are Already Gone

The cuts at Xbox are not finished — not even close. A new Fortune report on Xbox CEO Asha Sharma says Microsoft’s gaming division is planning three more rounds of layoffs: one later this month, another in November, and a third in January. And that’s on top of the damage already done — according to Fortune, 1,868 jobs have already been eliminated since Sharma announced the cuts in July.

Some context on how we got here. On July 6, Sharma sent a memo to all Xbox staff — which she also posted publicly — announcing “the most significant restructure in Xbox history”: roughly 3,200 roles would be cut across Microsoft’s fiscal 2027, which ends in June 2027. About 1,600 of those cuts landed the same day. A second wave followed on September 22, when Xbox games chief Matt Booty announced another 268 eliminations across Halo Studios and other first-party teams, with staff reports pointing to cuts at Rare, Treyarch, World’s Edge, Activision, and The Coalition. Do the math: if Fortune’s numbers are right, well over a thousand more people are still in line to lose their jobs across these next three rounds.

And the fear is already spreading to the studios that just shipped. Staff at The Coalition — the Gears of War studio, fresh off launching Gears of War: E-Day on October 6 — reportedly fear they’re next, with insider reporting flagging the studio as a likely target after E-Day’s softer-than-expected sales. The timing is brutal: bonuses tied to E-Day’s Metacritic score are due to pay out at the end of October, and staff worry that anyone cut before then loses that money too. Microsoft declined to comment.

Sharma has never hidden the reasoning. In her own memo, she described a business that is, in her words, not healthy — operating at margins three to ten times lower than comparable platform and publishing businesses, and, in a typical year, losing 64 cents for every dollar invested in its studios. Under the reset, Xbox’s management layers have been slashed from as many as 14 down to no more than five, and vendor spending has been cut in half. Microsoft CEO Satya Nadella has publicly backed the plan, calling the streamlining “great to see” and predicting Xbox returns to growth next fiscal year. The target reportedly on the wall: a profitable Xbox by June 2027 — something the division has arguably never meaningfully been in its 25-year history.

The studio map has already been redrawn in ways that would have been unthinkable two years ago. Halo — the franchise that built Xbox — now sits under Activision, which is developing the next Halo game with a new team, while a small Halo Studios crew remains to support the community and the games already out. Obsidian Entertainment has been folded under the Bethesda umbrella. Double Fine and Compulsion Games have been spun back out as independent studios, taking their IP with them. Ninja Theory, the studio behind Hellblade, reportedly saw two separate buyout agreements fall through and now faces a proposed closure consultation. Consultation at Arkane runs through the end of the year. Fortune notes the cuts have fallen particularly hard on long-tenured veterans — the people holding what it calls valuable institutional knowledge, walking out the door mid-crisis.

Hovering over all of it is the question nobody at Microsoft wants to answer directly: is this a turnaround, or is Xbox being dressed up for a sale? Fortune reports that several current and former staff believe the division is being prepared for an eventual sale, spin-off, outside investment, or conversion into a subsidiary — and that Sharma herself presented on those scenarios soon after taking the job. The Information previously reported that Nadella and CFO Amy Hood considered spinning Xbox out in June before backing Sharma’s overhaul instead. Microsoft’s commercial CEO Judson Althoff pushed back in Fortune’s piece: “We would not have put her on a business we intend to sell.” Sharma herself has been blunter, telling The New York Times flatly that Xbox is not for sale.

And yet the same Fortune report says the hardware roadmap rolls on: a next-generation Xbox handheld is planned for 2027, with the next home console — codenamed Project Helix — following in 2028. Analysts are already warning the Helix could land somewhere between $1,200 and $1,800 thanks to soaring memory and component costs, which would make the current generation’s pricing fights look quaint.

Why should PlayStation players care about any of this? Because Xbox’s collapse inward directly affects your library. Microsoft’s studios make some of the biggest games on PS5 — and with Halo under Activision, Obsidian under Bethesda, and a recent survey raising the possibility of franchises like Fallout and The Elder Scrolls going exclusive again, nobody can currently guarantee where the next generation of Bethesda and Obsidian games lands. Push Square’s assessment of the studio reshuffle was blunt: on the current trajectory, Xbox Game Studios as we know it may not exist this time next year. Couple that with today’s other bombshell — EA shutting down BioWare entirely — and October 21, 2026 is going down as one of the darkest days the games industry has had in years.

One important caveat: Fortune notes the planned rounds are still subject to change, and a separate report suggests the final total may come in under the 3,200 figure because leadership has in some cases chosen to restructure studios rather than close them. Microsoft has not publicly confirmed the October, November, and January rounds, and has not said which teams they would hit. We’ll update this story as the next wave lands — because if this report is right, it’s landing within days.

Source: Fortune (reporting), via Polygon and Tech4Gamers. This is a developing story.

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