Xbox CEO says spending ‘cannot continue’ as layoffs loom
Asha Sharma’s memo to Xbox staff: $20 billion spent over five years, revenue down half a billion, margins at 3 percent. Bloomberg says major layoffs land in July.
The new Xbox boss just put the division’s books on the table, and the books are ugly.
Xbox CEO Asha Sharma and Chief Content Officer Matt Booty sent a memo to all Xbox employees on June 10, 2026, then published it publicly on Xbox Wire. The headline admission: Xbox will end the fiscal year at about a 3 percent “accountability margin,” Microsoft’s internal profitability metric, down year-over-year. For a division this size, that’s couch-cushion territory.
The memo landed the same day Bloomberg reported the division is planning major job cuts in July, right after Microsoft’s fiscal year closes June 30, along with significant cuts to marketing and other budgets. The Verge added that the cuts could include a studio closure or changes to the Xbox Game Studios lineup. Microsoft declined to comment on the layoff reports. The exact scale isn’t public yet.
The $20 billion sentence
One passage from the memo is doing all the work, and it deserves to be read slowly.
“Excluding Activision Blizzard King, over the past five years, we have spent over $20 billion on ongoing investments in our content, platform, and hardware subsidy, but our annual revenue has declined nearly half a billion during that time. Going forward, this cannot continue.“
Twenty billion dollars in.
Half a billion in annual revenue down.
That’s the entire Xbox strategy of the last five years (Game Pass growth at any cost, subsidized hardware, multiplatform experiments) graded by its own CEO, in public, in one sentence. Sharma is 100 days into the job and her predecessor’s spending era just got a tombstone with a dollar figure on it.
The component crisis is worse than anyone said out loud
The memo’s second bombshell is about hardware costs, and the numbers are genuinely startling.
“When I joined as CEO in February, the price we paid for console storage components was over 2x as high as we paid last fall. These costs have since doubled again. And as we plan for the 2027 holiday season, we expect another significant increase, taking us over 5x the prices we paid only two years earlier.“
Five times the component cost in two years. Memory following “a broadly similar trajectory.” The AI infrastructure boom (which Microsoft itself is helping drive, a little awkwardly) is eating the supply of the exact storage and memory components consoles need.
And then the sentence that should worry anyone waiting on Project Helix: “We are currently unable to make as many consoles as players want to buy, and we need a new business model and partnerships for hardware.“
The next-gen Xbox is targeted for 2027, directly into that 5x cost environment. A new business model and partnerships reads a lot like third-party manufacturers (the ASUS ROG Xbox Ally already exists) carrying more of the hardware load while Microsoft carries less.
The economic picture this memo sits on top of
The memo didn’t come out of nowhere. Stack the receipts from the past nine months.
Game Pass Ultimate jumped 50 percent to $30/month in October 2025, and the subscriber base bled out. Xbox CSO Matthew Ball admitted at Summer Game Fest that the hike “shed millions of subscribers.”
Microsoft walked the price back to $23 in April and pulled day-one Call of Duty from the service as the trade-off.
Q3 FY26 gaming revenue fell 7 percent to $5.3 billion. Hardware revenue fell 33 percent, the second straight quarter of 30-plus percent hardware declines.
VGChartz estimates Series X/S sales through April are down 32 percent versus 2025 and down 46 percent versus 2024.
Sharma had already told Fortune the business “isn’t particularly healthy” and posted publicly that “player and revenue growth has not yet met our ambition.”
The memo is the same diagnosis with the supporting math finally attached.
The memo isn’t all funeral
Credit where due, the document spends its first stretch on genuine wins, and a couple are real.
Game Pass “started to grow again“ after more than eight months of decline, per the memo, following the April price cut. The platform teams shipped more updates in 100 days than in the prior year combined. The exclusives reversal is locked in writing: Gears of War: E-Day in 2026, Clockwork Revolution in 2027, and “signature exclusives every year” going forward.
Speaking of that exclusives reversal, Bloomberg’s sourcing suggests it happened fast. A PlayStation 5 version of Gears E-Day was reportedly in development before Sharma changed course, retailers were prepping PS5 pre-orders, and a Walmart listing and PEGI rating both briefly surfaced in the days before the Showcase. The multiplatform era didn’t wind down. It got yanked.
What July looks like
The memo closes with “Now we start the next 100 days“ and a call for “both optimism and realism.” Employees reading between those lines are bracing for the realism half. Bloomberg has the cuts starting in July. The Verge says significant. Nobody official will put a number on it.
Sharma’s first 100 days were the diagnosis: not healthy, margins at 3 percent, this cannot continue. The second 100 days are the surgery, and surgeries at Microsoft scale tend to be counted in thousands of jobs.
Maybe the reset works and the 2027 Helix launch lands on a leaner, healthier Xbox. Maybe the component math swallows the whole plan. But my read on a CEO publishing her own division’s worst numbers on the company blog is that she wants the pain on the record before the cuts, so nobody can say the cuts came out of nowhere.
They didn’t. There’s a memo.
Article compiled and edited by Derek Gibbs (entertainment editor) and the Clownfish TV newsroom.
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Hat Tips:
Xbox Wire / Asha Sharma and Matt Booty memo (June 10, 2026), primary source for the full memo text including the 3 percent accountability margin, the $20 billion / half-billion revenue decline passage, the “going forward, this cannot continue” line, the component cost trajectory (”over 5x the prices we paid only two years earlier”), the “unable to make as many consoles as players want to buy” admission, the Game Pass return to growth after 8+ months of decline, the exclusives commitments, and the “next 100 days” framing
Bloomberg News (June 10, 2026), primary reporting on the planned July job cuts following the June 30 fiscal year close, the marketing and budget reductions, and the sourcing on the cancelled PlayStation 5 version of Gears of War: E-Day with retailer pre-orders in preparation
GeekWire / Todd Bishop (June 10, 2026), memo coverage including the Q3 FY26 gaming revenue decline of 7 percent to $5.3 billion, hardware down 33 percent, and content and services down 5 percent
The Verge (June 10, 2026), the significant layoffs reporting including the potential studio closure or Xbox Game Studios lineup changes, and the memory cost trajectory detail
Variety (June 11, 2026), the full published memo text including the platform update statistics, Player Voice, FanFest, and the “surprising and even frustrating realities” language
Game Developer (June 11, 2026), the component shortage analysis including the AI investment connection and the “new business model and partnerships for hardware” passage
Kotaku (June 11, 2026), memo analysis including the 100-days framing and the broader division assessment
The Game Business Live (June 8, 2026), the Matthew Ball Summer Game Fest admission that the Game Pass price hike shed millions of subscribers
VGChartz (June 2026), Xbox Series X/S unit sales down 32 percent versus 2025 and 46 percent versus 2024