Microsoft is preparing to cut hundreds of jobs across its Xbox division this week in a second wave of layoffs inside its current business year, The Information reported, citing a person briefed on the company's plans.

The reductions could also include consolidation of several Xbox-owned studios, according to the outlet. They follow Microsoft's elimination of 1,600 Xbox roles in July and a previously stated intent to remove another 1,600 positions by the close of its fiscal year, a target the company has not yet publicly resolved.

What Sharma is targeting

Xbox CEO Asha Sharma is driving the restructure with the explicit goal of lifting Xbox's profit margins, The Information reported. Sharma has also redirected development toward The Elder Scrolls, Fallout and other flagship franchises while shrinking smaller acquired studios.

The strategy reverses the multi-year acquisition push that brought ZeniMax and Activision Blizzard under the Microsoft umbrella. Those deals folded dozens of mid-sized studios across North America, Europe and the UK into Xbox's internal roster, many operating under independent creative mandates.

Where the studios stand now

The current round follows Xbox's July decision to sell four studio subsidiaries:

• Compulsion Games and Double Fine Productions have returned to independent ownership.
• Ninja Theory and Undead Labs are under terms to join new owners.

July's earlier 1,600 reductions touched ZeniMax Online with hundreds of cuts and id Software with roughly 100, according to reporting at the time. Those cuts sit on top of Microsoft's 9,000-person layoff round last year, which hit Xbox heavily, and an additional 1,900 cuts across Activision Blizzard, Bethesda and Xbox in 2024.

What changes for game makers

For developers inside remaining Xbox studios, the near-term effect is reduced project headcount and a narrower slate of approved titles outside Microsoft's tentpole brands. Outsourced contractors, middleware partners and external QA vendors serving Xbox first-party teams typically see contract pipelines trimmed within weeks of confirmed headcount cuts.

The four studios on the block face a different calculus. Compulsion, Double Fine, Ninja Theory and Undead Labs now need publisher relationships, self-publishing infrastructure or new parent companies to ship subsequent projects. Id Software and ZeniMax Online remain inside the Xbox perimeter but are running smaller post-July, raising the operational question of which active projects survive the next budget cycle.

What to watch next

Two signals will clarify the scope of this week's cuts. Microsoft has yet to confirm or deny The Information's report, and confirmation will rest on whether the company lands on, or overshoots, its previously stated 1,600-roles-remaining target for the fiscal year. Separately, Game Pass subscribers face cloud gaming limits arriving in November — the first significant consumer-facing change to the subscription under Sharma's tenure — which will serve as a parallel test of the new operating model's appetite among paying players.