Which is worse, sailing your superyacht through the city where your company just made mass job cuts, or getting named to a U.S. Federal Reserve panel on jobs and productivity three days after announcing thousands of layoffs?

It might not be a full Zuck, but Microsoft Xbox CEO Asha Sharma is getting lots of attention, and not in a good way, for the latter this week.

Sharma was named Thursday to co-lead a new Federal Reserve “Productivity and Jobs” task force, charged with assessing the economic impact of AI and other new technologies on the labor market. Her co-leaders: Marc Andreessen, the venture capitalist and vocal AI booster, and Stanford economist Charles I. Jones, who is currently on leave at Anthropic, maker of the Claude AI chatbot.

The gaming press, as you can imagine, is having a field day. The headline from Kotaku sums it up: “Xbox CEO Will Advise Federal Reserve On Jobs After Mass Layoffs.”

PC Gamer, for its part, noted that the task force is supposed to represent a “commitment to price stability and maximum employment.” However, that’s the Fed’s broad mandate, as described by Chairman Kevin Warsh. It’s actually not the specific mission of the Productivity and Jobs task force, which is narrower: assessing what AI and other new technologies are doing to the economy.

In a separate sign of the backlash, Microsoft communications chief Frank Shaw took to X on Friday to knock down claims that the Xbox cuts were made to replace employees with foreign workers, calling it “bad information” and noting that the H-1B visa figures being cited are company-wide renewals, not Xbox-specific. He also pointed out that Sharma is “an American born, raised, and educated CEO, from Wisconsin.”

Also lost in the coverage of the Fed appointment is the fact that Sharma is less than five months into the job, having taken over as Xbox CEO in February with a mandate to turn around and preserve a gaming division that spent more than $20 billion over five years while its core revenue shrank. The restructuring announced this week is a key part of that effort.

What’s more, it’s hard to imagine that this is the timing Microsoft or Sharma wanted. Announcements like this are often outside the control of the participants. The Federal Reserve sets its own schedule.

Still, it’s tough timing for an executive who announced plans this week to cut 3,200 gaming jobs — about 1,600 immediately, with the rest over the coming year — amounting to roughly 20% of Xbox’s workforce. Sharma herself called it the most significant restructuring in the division’s history.

Meta CEO Mark Zuckerberg’s superyacht Launchpad, for the record, is currently cruising the waters off Juneau, Alaska, a full 900 miles from Seattle.

Xbox CEO Asha Sharma laid out a wide-ranging plan to overhaul Microsoft’s gaming division Monday, calling it the most significant restructuring in Xbox history and disclosing that the business has been losing 64 cents on every dollar invested in its game studios.

As detailed in a memo to employees, the changes include roughly 3,200 job cuts through the fiscal year — about 20% of the Xbox workforce — the spinoff of four game studios, a new COO, and a plan to flatten management from as many as 14 layers to no more than five.

“We will return to growth in 2027,” Sharma wrote. “History is full of companies that mistake longevity for inevitability. We will not be one of them.” 

Sharma, a startup veteran and former Microsoft AI leader, was named Xbox CEO in February. 

“I know this is painful,” she wrote. “These changes will directly affect people who have poured their creativity into building XBOX. Many joined us through acquisitions, while others were recruited here, or sought us out because they loved this industry and loved XBOX. Today’s decisions do not reflect their talent or dedication.”

But she also reiterated what she said in a memo last month: Xbox’s business is not healthy, operating at margins 3-10x lower than industry peers after years of heavy spending that failed to produce the expected growth. 

About 1,600 of the Xbox job cuts take effect Monday as part of a broader round of 4,800 layoffs across Microsoft. The remaining Xbox reductions will come in the months ahead. Sharma acknowledged that a year-long restructuring “creates additional challenges” but said “it is not possible to make all the necessary changes in a single day.” 

Sharma said the cuts reach across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios, though no publicly announced games are being cancelled.

Several game studios will be spun out as standalone ventures, removing the costs from Microsoft’s books while giving the studios a chance to survive on their own.

• Compulsion Games (South of Midnight) and Double Fine Productions (Psychonauts) will return to their management teams as independent studios, keeping their intellectual property and current projects. 
• Ninja Theory (Hellblade) and Undead Labs (State of Decay) will shift to new owners with funding to complete their current games. 
• In France, Arkane (Dishonored, Deathloop) is beginning a legally required consultation with its employee works council to determine its future. 

Sharma will also take on direct oversight of game studios Mojang (Minecraft) and King (Candy Crush), Xbox’s two largest studios by monthly active players. 

In addition, she is establishing a new chief operating officer role with end-to-end financial responsibility across content, hardware, platform, and services. Helen Chiang, a nearly two-decade Xbox veteran who led Mojang and the Minecraft franchise, has been promoted to the role. Dave McCarthy, a 17-year Xbox veteran who helped build the platform, is retiring. 

Across the division, Sharma wrote in the memo, Xbox will cut vendor spending by 50% and reduce management layers from as many as 14 to no more than five.

The overhaul follows a 25-year period in which Microsoft largely subsidized Xbox as a strategic bet on the living room. Microsoft CEO Satya Nadella has said that era is over, noting that YouTube creators make more money from Xbox games than Microsoft does.

Microsoft is cutting 4,800 jobs, just over 2% of its global workforce, citing a need to revamp its sales and consulting division to keep pace with a rapidly changing tech industry, while overhauling its Xbox business in a push for long-term growth and profitability from gaming. 

The cuts include about 600 jobs in Washington state, home to Microsoft’s Redmond headquarters. That’s down from 3,200 job reductions locally a year ago. Combined with ongoing hiring, Microsoft’s workforce in the state is expected to remain stable at around 52,000 people.

About 1,600 of the 4,800 job cuts being announced Monday are in the Xbox division. Additional Xbox layoffs in the months ahead are expected to bring total job reductions in the gaming division to roughly 3,200, or about 20% of the global Xbox workforce, this fiscal year. 

Microsoft is also spinning off four Xbox game studios to operate independently. 

In an internal memo, Xbox CEO Asha Sharma called it the biggest restructuring in Xbox history, saying the division has been “operating at margins that are 3-10x lower than comparable platform and publishing businesses” and that studios have been losing 64 cents for every dollar invested.

Overall, top executives sought to distinguish Microsoft from other tech giants, saying the cuts were minimized by the redeployment of more than 4,000 employees into new roles over the past year and a voluntary retirement program that let thousands more exit by their own choice.

By comparison, the company last year cut more than 15,000 jobs globally in two rounds of layoffs in spring and summer 2025 — the largest reductions in more than a decade.

The latest cuts come amid record capital spending on the company’s AI infrastructure, pressure from Wall Street to keep operating expenses in check, and a 30% stock slide that has wiped out roughly $1.2 trillion in Microsoft’s market value over the past nine months.

“Microsoft can only be a strong employer if it has a successful business,” said Brad Smith, its president and vice chair, in an interview with GeekWire. “We have to adapt to change.”

Before the latest cuts, the company’s total workforce was about 220,000 people. Across the company, Microsoft expects worldwide headcount to decline year-over-year, CFO Amy Hood said on an April earnings call. 

Amy Coleman, Microsoft’s chief people officer, said in a memo to employees Monday morning that the roles the company is eliminating today are not being directly replaced by AI.

At the same time, she acknowledged, “AI is changing how work gets done.” She added, “Some of the tasks we do every day can now be automated, and that means we all need to keep learning, keep building new skills, and keep adapting as the work evolves.”

However, the line from Coleman’s memo that may get the most attention internally is this: “We are still early on this journey, and there will be more changes ahead; other parts of our business will need to make similar changes.”

In an interview, Coleman stopped short of signaling further layoffs across the company. Instead, she described a larger shift in how Microsoft manages its workforce. That includes reskilling engineers for customer-facing and AI-focused positions, and exploring how to make voluntary exit programs a regular part of the company’s operations — not just a one-time offer, but potentially something employees could opt into annually or on an ongoing basis.

Coleman confirmed that about 30% of roughly 8,750 eligible U.S. employees accepted Microsoft’s first-ever voluntary retirement program in recent weeks, in line with the company’s expectations, which reduced the size of the reduction in force announced Monday. 

The cutbacks and changes in the company’s sales and consulting teams build on last week’s launch of the Microsoft Frontier Company, a $2.5 billion initiative to embed 6,000 engineers inside customers to deploy AI. The shift is reducing some traditional sales and consulting roles and resulting in more technical positions working directly with customers. 

“We’re seeing that we need more engineering excellence in the customer space,” she said. 

Smith said software development is undergoing its biggest shift in the more than 50 years since Microsoft’s founding. The widespread use of AI is making code cheaper and faster to produce, but he said that’s also creating demand for new kinds of roles and work.

“Some things like coding require less time of software developers,” he said. “At the same time, there’s new parts that are growing, whether it’s the product management or software design, or perhaps most importantly, working directly with customers.”

Update: A filing by Microsoft on Monday under the Washington state Worker Adjustment and Retraining Notification Act listed 605 positions being eliminated in Washington state.

The roles span software engineering, product management, sales strategy, data science, business program management, marketing, and game design, among others — ranging from mid-level individual contributors to senior managers, consistent with cuts that reach across both the company’s technical ranks and its sales and consulting operations.

In 2007, Microsoft’s Xbox 360 consoles started dying — overheating until three lights on the front blinked red, a defect gamers came to call the “red ring of death.” Microsoft’s response was to extend the warranty on every machine and take a charge of more than $1 billion to fix the problem, making it one of the costliest product failures in the company’s history.

Microsoft could afford it financially, but the bigger factor was strategy. Xbox was a bet on the living room, and for a company minting money on Windows and Office at the time, losing a billion or so was a justifiable cost of staying in the game.

Nearly two decades later, that patience has run out.

“Going forward, this cannot continue,” the new Xbox CEO Asha Sharma wrote in a memo to employees last month, offering a blunt assessment of a business that has spent more than $20 billion over five years, only to see its core revenue fall by nearly half a billion dollars, running at a thin 3% profit margin, by Microsoft’s own internal measures.

With thousands of layoffs expected to be announced across Microsoft as soon as next week, the Xbox division is likely to be among the hardest hit.

The cuts reach across the company — including sales and consulting — part of a restructuring that has become routine around the close of Microsoft’s fiscal year. But for Xbox, they’re an early step in a broader effort to reset the business, rein in costs, and position the division for healthier profits.

Microsoft CEO Satya Nadella has been blunt about it: the company has spent years subsidizing Xbox rather than profiting from it, and that era is over. The videos and livestreams of people playing Xbox games that fill YouTube generate more money than Microsoft makes from the games themselves, he noted in an appearance on the Hard Fork podcast.

“No one can accuse Microsoft of not having invested for the last 25 years,” Nadella said. “And now we have to turn this into a sustainable business.”

Long-term strategic bet

Turning it around means breaking a pattern that runs through Xbox’s history.

Xbox launched in 2001 and lost money for most of its first decade. Microsoft absorbed the losses and stayed in — going up against Sony’s PlayStation and Nintendo — because it saw a strategic prize in owning a piece of the living room, and later mobile. Online gaming also gave the company early experience running services at scale, which fed its cloud ambitions.

Over time, the goal shifted from selling hardware to selling subscriptions.

Xbox Live, launched in 2002, turned online play into recurring revenue. Game Pass, which arrived in 2017, let players pay a monthly fee — the top tier is about $23 — for a library of games, including Microsoft’s own new releases the day they come out. The idea was to get people paying for Xbox everywhere: consoles, PCs, phones and the cloud.

And when growth stalled, Microsoft doubled down. It paid $7.5 billion in 2021 for Bethesda, the studio behind Fallout and The Elder Scrolls, then $69 billion in 2023 for Activision Blizzard (whose games include Call of Duty, World of Warcraft, Diablo and the mobile hit Candy Crush) the largest acquisition in Microsoft’s history.

A series of economic headwinds

In recent years, almost everything about the economics of gaming has turned against Xbox at the same time.

Hardware loses money, and AI is making it worse. Microsoft sells consoles at or below cost, banking on games and subscriptions to make up the difference. But AI data centers are consuming so much memory and storage that chip prices have spiked. That has forced Microsoft to raise Xbox console prices, most recently a $100-to-$150 hike this summer that it blamed directly on component costs.

Xbox lost the console war. By most estimates, Sony’s PlayStation 5 has outsold the Xbox Series X and S more than two to one. A smaller base means fewer game sales and subscriptions to offset the upfront hardware losses. That has left Xbox a distant second for the entire generation.

Revenue is shrinking. Even setting aside the games it gained from Activision, Xbox’s annual revenue has fallen nearly $500 million over five years — while the money going into the business keeps climbing. It has been investing more to earn less.

Microsoft’s most recent quarterly filing shows gaming revenue of $16.8 billion for the nine months through March, down about $1.1 billion, or 6%, from a year earlier.

Game Pass cuts into sales. Handing subscribers a new game the day it launches undercuts the roughly $70 they would have paid to buy it. The service delivers steady subscription income, but thinner economics on the games themselves.

Activision didn’t fix the margins. Even with one of gaming’s most profitable businesses folded in, Xbox earns only about 3 cents of profit on every dollar — well under the 17 to 22 cents typical in the industry. If the biggest acquisition in company history can’t move the margin, little will.

Every spare billion is flowing to AI. Microsoft is pouring more than $100 billion a year into the data centers and chips behind its AI push, trying to capitalize on the boom. Against a risk and payoff that big, a gaming business that barely breaks even feels like yesterday’s strategic bet.

What’s next for Xbox

The cuts have already started. In recent weeks, Microsoft has signaled plans to close or sell some studios, including Ninja Theory, maker of the acclaimed “Hellblade” series.

Shedding staff, studios and marketing will lift Xbox’s profit margins in the near term. What it won’t do is fix the underlying problem: a business can trim its way to a better number only so much before it has to generate more revenue.

Sharma’s plan, so far, is to concentrate on Xbox’s biggest franchises, funding blockbusters like Halo and Fallout while pulling back elsewhere. It’s leaning on Game Pass and releasing most of its games on PCs and rival consoles from Sony and Nintendo, reaching players well beyond Xbox’s shrinking base, even as it holds back a few new exclusives like Gears of War to give owners a reason to stay.

Microsoft is also rethinking the console itself. In her memo, Sharma described a “hardware component crisis” that has left the company unable to make as many consoles as players want, and called for “a new business model and partnerships” for its hardware.

How far the reset ultimately goes is an open question. The Information reported that Microsoft has weighed making Xbox a standalone subsidiary, a joint venture, or a spin-off, though nothing is imminent.

Whatever happens next, it’s clear that times have changed. In 2007, as the red ring of death crisis emerged, Peter Moore, who ran the Xbox business at the time, and his boss Robbie Bach went to then-CEO Steve Ballmer to ask for the money to repair and replace the failing consoles.

Ballmer didn’t flinch. “What’s it going to cost?” he asked, as Moore later recalled.

Told it was $1.15 billion, Ballmer said, simply: “Do it.”

Moore credits that decision with saving Xbox. There would have been no Xbox One, he said, without Ballmer’s willingness to spend more than a billion dollars to protect the brand.

Nearly two decades later, Microsoft is done writing that kind of check.

Microsoft is preparing to cut thousands of jobs next week, continuing to rein in operating costs as the company pours unprecedented sums into AI infrastructure. 

Business Insider broke the news Tuesday afternoon, saying that the cuts will impact less than 2.5% of the company’s global workforce of about 220,000 people. It includes not just Xbox, where cuts have been signaled for weeks, but also layoffs in sales and consulting. 

GeekWire confirmed the details of the report with a person familiar with the company’s plan. Microsoft isn’t commenting on the report.

The timing follows a familiar pattern. Microsoft often restructures its operations around the close of its fiscal year on June 30, and the cuts would come just as the new year begins. 

The reductions were bigger last year. Microsoft laid off more than 15,000 people in two rounds of cuts a few weeks apart: about 6,000 in May 2025, then around 9,000 (roughly 4% of the company at the time) in early July 2025.

One difference this year: Microsoft’s first-ever voluntary retirement program. About a third of the approximately 8,750 eligible U.S. employees took the buyout, reportedly allowing the company to cut a smaller share of its workforce through layoffs than a year ago. 

The company is on pace to spend more than $100 billion building AI and cloud infrastructure in the fiscal year that just ended — up from $88.7 billion the year before — with about two-thirds going to the chips that power AI. 

Microsoft shares closed Tuesday at $373.02, down 19% over the past month and near a 52-week low, as Wall Street questions whether its heavy AI spending will pay off.

The layoffs come amid a broader wave of restructuring across the tech industry, which has shed more jobs than any other sector this year. U.S. tech companies have announced 123,653 cuts so far in 2026, up 66% from the same stretch of 2025, according to a report from outplacement firm Challenger, Gray & Christmas. 

Across all sectors, not just tech, AI was the most commonly cited reason for job cuts in May — the third straight month it has led the list. The 38,579 cuts attributed to AI were the most in any month since Challenger began tracking the cause in 2023. For the year, AI has been linked to 87,714 cuts, already surpassing the 54,836 attributed to it in all of 2025.