Following recent rumors of the same, Xbox CEO, Asha Sharma announced on July 6 that Microsoft's gaming division would be cutting its workforce by as much as 20% in the 2027 financial year as part of a year-long restructuring at Xbox. The layoffs started with 1,200 employees on the day of the announcement, and Sharma blames the layoffs on declining Xbox revenue, stating that "our business is not healthy," and that Xbox is "operating at margins that are 3-10× lower than comparable platform and publishing businesses." She goes on to acknowledge that Xbox sales for the Series X|S console generation has been low, and that Xbox used Game Pass, multi-platform launches, and an expanded content portfolio as an attempt to compensate for the low install-base and in order to grow the brand's presence.

As part of the plan to "reset" Xbox, Sharma confirmed that Compulsion Games and Double Fine Productions will become independent studios, while Ninja Theory and Undead Labs will be bought out and have started the acquisition process to be bought out by new ownership, where Senua and State of Decay 3 will continue development. Xbox is also looking to cut Arkane Lyon loose, although it doesn't seem as though a definitive plan has been put in place yet. Unspecified changes are also coming for Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios, but Sharma has promised that these changes will not impact publicly announced first-party games. The restructuring will also result in a simplification of management at Xbox, with management layers reduced to a maximum of five and three where possible. Sharma claims that the "flatter organization" will help build success at Xbox, and she plans a "50% reduced vendor spend," across the company.