Microsoft Purges Thousands of Staff as Leaked Executive Memo Exposes Historic $20 Billion Xbox Cash Collapse

Microsoft has cut 4,800 jobs across its gaming and sales divisions after an internal memo exposed an Xbox business that burned through billions while its revenue shrank.

The cuts, which landed on 6 July 2026, hit Xbox hardest, with 1,600 roles eliminated immediately and another 1,250 expected to go through fiscal year 2027, together representing roughly 20% of the division's entire workforce. The rest of the reductions fell across Microsoft's broader sales organisation. The cuts follow a blunt internal reset memo from Xbox CEO Asha Sharma, published weeks earlier, which laid out a division spending far more than it was earning back. Together, the reductions amount to one of the largest single-day workforce cuts in Xbox's 25-year history.

The Memo That Laid Bare Xbox's Finances

Sharma, who took over as Xbox CEO from Phil Spencer in February 2026, co-authored a memo with Chief Content Officer Matt Booty on 10 June, published on Xbox's own Wire platform, warning staff that the business was 'not in a healthy spot' and needed a fundamental reset. The memo stated plainly that, 'going forward, this cannot continue.'

According to the memo's own figures, Xbox spent more than £15.1 billion ($20 billion) over five years on content, platform and hardware subsidies, excluding the separate £52 billion ($69 billion) Activision Blizzard acquisition. Over that same period, annual revenue fell by nearly £378 million ($500 million), leaving the division closing its 2026 financial year on roughly a 3% margin, far below the 30% Microsoft typically expects of its major divisions.

The memo attributed the shortfall to strategic fragmentation, describing simultaneous investment across console hardware, PC gaming, mobile, Game Pass subscriptions and cloud streaming that left flagship franchises, in the memo's own words, never 'adequately funded to compete and win.'

Thousands Cut as Layoffs Reach Beyond Gaming

The job losses were confirmed to staff on 6 July through a separate internal memo from Amy Coleman, an executive vice president at Microsoft, obtained by reporters covering the cuts. In it, Coleman told employees that the business was changing 'because the world around it is changing,' and that Microsoft was 'restructuring to position the business for long-term success.'

Several Xbox studios are being closed or spun off into independent operations as part of the restructuring, continuing a pattern of contraction that began with Microsoft's July 2025 layoffs, when the company cut close to 4% of its global workforce.

Xbox's own financial performance in the run-up to the cuts underlined the pressure behind the memo. Gaming revenue fell 7% in the most recent quarter to £4 billion ($5.3 billion), while hardware sales dropped 33%, with Sharma's memo also pointing to rising component costs driven by a DRAM shortage tied to global AI infrastructure demand.

Union Pushes Back as Staff Face Uncertainty

The Communications Workers of America, which represents more than 3,500 Xbox employees following Microsoft's 2023 recognition agreement, has publicly urged the company to negotiate over job security and the layoff process ahead of the cuts. The union's members include staff across several of Microsoft's unionised gaming studios, who were bracing for the reductions after weeks of internal warnings from leadership.

Microsoft has not disclosed a full breakdown of which teams and titles will be affected beyond confirming the scale of cuts to Xbox and commercial sales, and has directed staff to internal channels for further guidance following Coleman's memo.