Microsoft to cut 3,200 jobs amid Xbox restructuring. ‘Our business … is not healthy.’
Microsoft (MSFT) on Monday announced it is cutting 4,800 roles across the company, roughly 2.1% of its workforce. The bulk of the layoffs, 3,200, will come from Microsoft’s Xbox division.
According to Xbox CEO Asha Sharma, the first round of cuts includes 1,600 employees today. The company is also moving four studios—Ninja Theory, Undead Labs, Compulsion Games, and Double Fine Productions—to outside management, and is working to sell or spin off a fifth, Arkane Studios, in France.
Microsoft stock fell more than 1% on the news.
Sharma, who took the reins of Microsoft’s gaming division in February, has made several statements over the last few months about working to address Xbox’s shortcomings. She’s taken steps to reduce the price of the company’s subscription gaming service, as well as improve branding.
But Monday’s move is her most consequential yet.
“Our business today is not healthy,” she wrote in an email to employees. “We are operating at margins that are 3-10x lower than comparable platform and publishing businesses. We must reset XBOX.”
At the same time, she explained, the company’s core business weakened.
According to Sharma, Microsoft entered the latest console generation with a smaller install base and higher costs than competitors like Sony (SONY) and Nintendo (NTODY). The company then sought to invest in other services including expanding its portfolio to put first-party games on rival systems and growing its Game Pass service, but the moves didn’t pay off as Microsoft had hoped.
“In a typical year, we lost 64 cents for every dollar we invested,” Sharma wrote.
The Xbox chief also noted that some work within the division passes through 14 layers of management, and that its platform teams have grown by 40% since the start of this console generation.
Sharma says she intends to reduce those layers to “no more than 5, and where possible, 3.”
The video game industry, like the rest of the consumer technology market, is facing an unprecedented memory and storage crisis. Microsoft has raised prices on its Xbox consoles to contend with the rising cost of the components, as have Sony and Nintendo.
Shares of Nintendo have collapsed 52% over the last 12 months, with Sony declining 17%.
Apple (AAPL) has also increased the price of a number of its products including its MacBooks and iPads.
In a note to employees, Microsoft’s chief people officer Amy Coleman said that none of the roles being cut will be replaced by AI, but said that the technology is changing how work is done.
