Microsoft's gaming division is preparing for another wave of layoffs. According to Bloomberg journalist Jason Schreier, mass layoffs at Xbox could happen as early as July, after Microsoft's fiscal year ends on June 30.
The scale of the upcoming cuts is still unknown, but according to sources, the company also intends to significantly reduce budgets for marketing and several other business areas.
The information emerged against the backdrop of an internal letter sent to employees by Xbox head Asha Sharma and head of gaming content Matt Booty. The document states that the internal equivalent of the operating margin has fallen to 3%.
According to the letter, excluding Activision Blizzard, the company has invested more than $20 billion over the past five years in content, platform development, and gaming hardware subsidies. At the same time, Xbox's annual revenue over the same period decreased by almost $500 million.
Sharma noted the need for a complete overhaul of the division's business model.
One of the reasons for the current situation, according to management, is the excessive expansion of the network of internal studios. According to the head of Xbox, the company increased content production to support several strategies related to subscriptions, cloud gaming, and various devices. However, the structure ultimately proved to be too bloated and expensive.
At the same time, management acknowledges that many key Xbox franchises have not received sufficient funding to compete fully in the market. Going forward, the company intends to rebalance investments between existing series, exclusives, and new intellectual property.
The letter also mentions serious problems with console production. According to Sharma, the cost of components for storage devices has increased more than fivefold compared to two years ago, and memory prices show a similar trend. Because of this, Xbox cannot produce enough consoles to meet demand and is forced to look for new business models and partnerships for the hardware division.