Xbox CEO Asha Sharma, roughly 100 days into her tenure, delivered a blunt assessment of Microsoft’s gaming business in a memo to employees Wednesday, saying that heavy spending with thin profit margins and declining revenue “cannot continue.”
The memo, posted publicly on the Xbox blog, came as Bloomberg News reported that the division is planning major job cuts next month, soon after the close of Microsoft’s fiscal year on June 30. Xbox is also planning significant cuts to marketing and other budgets, according to the report.
The exact scale of the layoffs is not yet clear. Microsoft declined to comment. The Verge also reported that Xbox “will be hit with significant layoffs next month,” citing people familiar with the plans.
Sharma’s memo did not mention layoffs but described a business that needs a sweeping reset. She and Xbox content chief Matt Booty, who co-signed the memo, cited rising hardware component costs, an overextended studio system, and aging platform infrastructure among the challenges facing the division.
Xbox will end the fiscal year at about a 3% “accountability margin,” an internal metric Microsoft uses to measure the profitability of the business, according to the memo.
“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,” Sharma and Booty wrote. “Going forward, this cannot continue.”
Microsoft’s most recent quarterly filing illustrates the challenge. Gaming revenue fell 7% to $5.3 billion in the quarter ended March 31, with Xbox hardware revenue down 33% on lower console sales, and Xbox content and services revenue down 5%.
The memo follows Sunday’s Xbox Games Showcase, where Sharma reversed course on the company’s multiplatform strategy, announcing that Gears of War: E-Day and Clockwork Revolution will be Xbox console exclusives. Bloomberg reported Wednesday that a PlayStation 5 version of the new Gears of War game had been in development, and was canceled, before the announcement.
Sharma took over in February from Phil Spencer, the longtime Xbox leader who announced his retirement after 38 years at Microsoft. A former Instacart COO and Meta product executive, she previously ran Microsoft’s CoreAI product organization.
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