Satya Nadella praises Xbox team ‘streamlining’ amid layoffs

The comments, first highlighted by Kotaku, did not announce another round of layoffs. They arrived during a restructuring that Xbox had already described in much broader terms.

The reset includes thousands of planned job cuts

In a July 6 message to Xbox employees, Sharma said Microsoft would eliminate about 3,200 roles across its 2027 fiscal year. Roughly 1,600 of those cuts were immediate, with the balance expected later in the year. The plan also called for four studios to leave Xbox for new management and for other teams to reduce or redirect investment.

Sharma wrote that the Xbox business was “not healthy,” citing margins she said were three to ten times lower than those of comparable platform and publishing businesses. The reset also aimed to reduce management layers, simplify internal tools and cut vendor spending. At the same time, she said Microsoft expected to invest as much in Xbox during the year as it ever had, but with tighter focus.

The pressure is visible in Microsoft's results. In its fiscal 2026 fourth-quarter report, the company said Xbox revenue fell 10% year over year. Xbox content and services revenue also declined 10%, against a prior-year quarter that benefited from stronger first-party releases.

Nadella points to the catalog and a growth target

Nadella paired his approval of the restructuring with confidence in Microsoft's game portfolio. He said he felt “fantastic” about the company's studios and intellectual property and their ability to produce games in the future.

He did not name those games or give a numerical target for the turnaround. Nadella said Sharma's team plans to get Xbox “back to growth” next fiscal year and to produce “some great games” while carrying out that plan. Sharma's July memo used slightly different timing, saying Xbox would return to growth in 2027. For now, the public strategy is clearer about the scale of the cuts than the specific releases or financial milestones expected to deliver that growth.