Microsoft has cut at least 5,750 Xbox jobs since closing its $68.7 billion Activision Blizzard acquisition in October 2023, and CEO Satya Nadella now describes the upheaval as a routine "streamlining" process led by new Xbox boss Asha Sharma.

Nadella made the comments on the Sources Podcast (via Kotaku), framing years of layoffs, studio closures and divestments as necessary restructuring under Sharma, who replaced Phil Spencer as head of Xbox in February 2026.

The latest round, confirmed in July 2026, will remove 3,200 people from Xbox Game Studios by the end of the current fiscal year. That reduction includes the divestment of Compulsion Games, Double Fine and Undead Labs, while Arkane and Ninja Theory face the threat of outright closure.

How did the job losses accumulate?

The post-merger cuts span five separate rounds:

• July 2026: 3,200 confirmed layoffs, plus divestment of Compulsion, Double Fine and Undead Labs.
• 2025: An undisclosed number of cuts targeting subsidiaries including ZeniMax Online Studios and King.
• January and September 2024: 2,550 workers laid off across two rounds.
• May 2024: Arkane Austin, Tango Gameworks and Alpha Dog Games shuttered, producing further job losses.

The full scale of Microsoft's post-merger reckoning remains unclear because several rounds went undisclosed, but the confirmed tally stands at a minimum of 5,750 workers since October 2023.

What did Nadella actually say?

"I feel fantastic about the IP we have right now," Nadella said on the podcast. "If I look at the studios, the IP portfolio we have, and our ability to then take that and produce great games going forward, I feel fantastic."

"There's some amount of streamlining the team is doing, and Asha is doing, which is great to see, and then we have to invent the right sustainable business model that allows us to deliver gaming to more and more people," he continued. "That has always been the goal, which is, we want to be a great publisher and a great platform provider for games across both PCs and Xboxes."

Nadella added that Sharma has told him Xbox will achieve "growth" in the next fiscal year while "producing some great games." He offered no figures to support that projection.

What changes for the studios left behind?

The remaining internal studios now carry the task of revitalizing the core franchises Xbox depends on, while operating with diminished senior staff and persistent layoff uncertainty. Speaking to Game Developer earlier this year, workers affected by the July cuts questioned whether teams can recover after losing so much specialist talent.

"Triple-A game development is so collaborative and so interconnected [around] specialists that [laying off so many people] is like having a wide piece of cloth and taking out half the threads," one affected worker told Game Developer.

"The entire thing is going to fall apart because we depend so closely on each other, and you can't just rip out a third or almost half of your implementers—your direct implementers—and expect to have the same level of content," the person said. "Not even close."

Hardware adds another pressure point. Xbox consoles have become increasingly expensive amid a component shortage driven by massive investment in AI datacenters—an investment push led in part by Microsoft itself.

What happens next?

The July 2026 cuts run through the end of the current fiscal year, meaning further departures are already scheduled. Whether Sharma's promised "growth" materializes—and whether Arkane and Ninja Theory survive as Microsoft-owned studios—will define Xbox's operating picture over the next twelve months.