Xbox CEO Restructuring Sparks Questions Over Microsoft’s Long-Term Exit Plans

One of the biggest worries raised by Asha Sharma’s move into the Xbox CEO role earlier this year is what it could mean for Microsoft’s long-term plans for gaming. With layoffs and restructuring rolling out over the past few days, players are now asking a sharper version of the same question: is Microsoft preparing to sell Xbox, and are the current changes the first steps toward that?

A recent report claimed Sharma wants faster development cycles for major upcoming entries like The Elder Scrolls, Fallout, and Halo as part of a broader company reset. The details pointed to a possible shift in how Xbox is organized, with Microsoft reportedly not ruling out converting the Xbox brand into a fully owned unit. That scenario could see Xbox run like a joint venture with outside partners, or even sold to another company.

Since then, the reset has become much more concrete. On Monday, 1,600 employees were cut, and another 1,600 are expected to be removed before the end of the current financial year. That means the staff who survived this week’s wave are now waiting to learn whether more layoffs will hit them in the coming months. Four Xbox studios have already exited the platform, and another group of studios is reportedly set to be sold or shut down, alongside multiple cancelled projects.

Bloomberg journalist Jason Schreier reported that Obsidian Entertainment—known for Avowed and The Outer Worlds—let go of about a quarter of its workforce, and Avowed 2 was canceled. After the shakeup, Obsidian has reportedly been redirected to work on a new Fallout title. Meanwhile, id Software, the team behind Doom, was also “gutted,” and Bethesda Game Studios staff have voiced concern about The Elder Scrolls 6 following cuts at the same time.

Quick facts

• 1,600 staff were laid off on Monday, with another 1,600 expected before the end of the current financial year.
• Four Xbox studios have left, with additional studios planned to be sold or shut down.
• Projects have been canceled, including Avowed 2.
• Obsidian Entertainment laid off a quarter of staff; Obsidian has been reassigned to a new Fallout game.
• id Software was described as heavily impacted by the cuts.
• Bethesda Game Studios staff raised concerns about The Elder Scrolls 6 after additional reductions.

Some observers think the reset is meant to make Xbox easier to restructure—or easier to sell. Even so, analysts argue that a full buyout would be difficult for most potential buyers. Microsoft’s Activision Blizzard purchase reportedly cost $69 billion, and acquiring Xbox wholesale would likely require a similarly massive investment because of its payroll, studio network, and the hardware side of the business.

Because of that, analysts suggest a more realistic outcome is that large companies could take Xbox apart rather than buying it all at once. The Verge notes Microsoft has already gone down this route before: Ninja Theory (the Hellblade developer) and Undead Labs (behind State of Decay) were sold to undisclosed buyers. Double Fine, the maker of Psychonauts, and Compulsion, known for South of Midnight, have also reportedly moved forward independently with their back catalogs and franchises.

Microsoft has also indicated it plans to sell Arkane Lyon, the studio associated with Marvel’s Blade, though the exact structure of that sale is still unclear.

Yoshio Osaki, president and CEO of IDG Intelligence, told The Verge that it’s feasible “individual studios, IPs, and teams are sold or spun off piecemeal.” In other words, the path might not be a single buyer stepping in—it could be a series of detachments.

Then there’s the practical problem of who would want to buy Xbox in the first place. Even Microsoft’s own messaging implies the business isn’t performing where it needs to. Xbox ended the financial year with a 3% accountability margin (described as an assumed profit margin), and that figure is down year-over-year. Over the last five years—excluding Activision Blizzard King—Microsoft reportedly spent more than $20 billion on ongoing investments in what Sharma called a content, platform, and hardware “subsidy,” yet annual revenue has fallen by nearly half a billion during that same span.

In a blog post announcing the layoffs, Sharma said Xbox is operating “at margins that are 3-10x lower than comparable platform and publishing businesses.” She also pointed to what she described as a disadvantage entering the “Gen 9” era, including a smaller install base and a higher cost structure. Sharma said Xbox tried to grow by betting on Game Pass, multi-platform strategies, and a wider content lineup, but those efforts “did not grow at the pace we expected,” weakening the core business. She added that Microsoft responded by adding more teams, more investment, and more time, hoping for a better outcome—before calling out what she described as the industry’s most severe hardware crisis.

Microsoft also raised the prices of Xbox consoles. The company attributed the increases to higher console storage and memory costs, which it said have climbed by more than 2.5 times, with another expected doubling by fall 2027. Microsoft said the wider consumer electronics industry is struggling with a components crisis, but that console impacts are particularly severe, and Sharma echoed the same point in the Xbox “Reset” memo.

What comes next for Xbox

For now, Sharma’s reset plan appears to be the guiding force, but the future of Game Pass remains a major unknown. There are also reports that Microsoft plans to roll out more of its major games as Xbox console exclusives. Still, even if the strategy convinces players to purchase a console, the next problem is whether Xbox can generate enough revenue to meet demand, and whether consumers will have the budget for hardware after price hikes.

Some players speculate that Project Helix—the next-generation Xbox—could arrive with a price tag above $1,000, and that it might not include a disc drive. That raises a broader worry: is Microsoft preparing for console sales to drop sharply, and is the current reset designed to survive that scenario?

Wesley is Director, News at IGN. Find him on Twitter at @wyp100. You can reach Wesley at [email protected] or confidentially at [email protected].