Xbox is reportedly preparing to make major layoffs next month as Microsoft’s gaming division faces pressure over falling revenue, rising hardware costs and questions over its long-term strategy.

According to a Bloomberg report, the layoffs are expected after the end of Microsoft’s fiscal year on June 30. The number of staff expected to be affected is not yet known.

The reported cuts would come alongside other reductions in areas including marketing, and follow a period of significant restructuring across Xbox and Microsoft’s wider gaming business.

In an email to employees, published on Xbox Wire, Xbox CEO Asha Sharma and Xbox Game Studios head Matt Booty reflected on the first 100 days of Sharma’s tenure and set out five “realities” the division must navigate.

The message pointed to recent successes, including the claim that “over one billion players” play Xbox and Xbox games each year. However, it also outlined serious financial and operational challenges facing the business.

According to the email, Xbox has spent $20 billion on content investments over the past five years, not including Microsoft’s $69 billion acquisition of Activision Blizzard King. Over the same period, annual revenue declined by “nearly half a billion”, while the business has fallen to a 3% “accountability margin”, or profit margin.

“Going forward, this cannot continue,” Sharma and Booty wrote.

The email also addressed what it described as a “hardware component crisis”. Sharma said that when she joined the company, the price Xbox paid for console storage components was more than double what it had paid the previous autumn. That cost has since doubled again, with further increases expected into the 2027 holiday season.

“While the entire industry is facing a components crisis, we believe we have been impacted more greatly than many of our peers due to the choices we made over the last half decade. We are currently unable to make as many consoles as players want to buy, and we need a new business model and partnerships for hardware as we remain committed to Helix.”

Sharma and Booty also reflected on Xbox’s expansion through studio acquisitions over the past decade, saying the division had “over extended” itself and had “not adequately funded” its studios to “compete and win.”

“At the same time, as we saw this past weekend at Showcase, a reliable pipeline of first- and third-party exclusives (the publisher showed off new entries in the Fable and Gears of War franchises) and new IP are critical to our success,” they continued. “We need to reassess the balance between these and our investment priorities for the next 5 years.”

The email also raised concerns over Xbox’s underlying technology and operating model.

“Our current platform infrastructure is not built for the battle ahead. Our systems are overly complex, spanning hundreds of dependencies, which hinders our ability to move fast. We’ve become too reliant on vendors to operate our systems and must become more self-reliant as an engineering culture to build for the future. We must increase the value we ship to players while decreasing the time it takes to do so. Going forward, we’ll evolve and rebuild our stack and look at capabilities across all of XBOX and potential M&A to help us win in hardware, PC, mobile, and streaming.”

The email did not directly address the reported layoffs. However, the message has added to expectations that Xbox is entering a period of significant change under Sharma, who took over leadership of the division in February.

Since taking the role, Sharma has spoken publicly about the need to make “hard choices” and pursue a “reset” of the business. Those changes have already included dropping the price of Game Pass, removing day-one Call of Duty releases from the service after it lost “millions of subscribers” following a previous price increase, and rethinking the company’s approach to exclusives including Gears of War: E-Day and Clockwork Revolution, as well Starfield, a much-vaunted first-party exclusive which was recently ported to PlayStation 5.

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Bloomberg also reportedly confirmed earlier reporting that Gears of War: E-Day had originally been planned for PlayStation 5 and was already in development for Sony’s console before that strategy changed. A Halo trailer intended to appear at the most recent PlayStation State of Play showcase was also reportedly pulled.

The expected layoffs would follow several previous rounds of cuts across Xbox. Almost a year ago, Microsoft announced wider company layoffs affecting 9,100 people, including cuts within its gaming business. That round reportedly led to 200 roles being cut at Candy Crush maker King, the cancellation of a Perfect Dark reboot, the closure of The Initiative, the cancellation of an MMORPG at ZeniMax, and the cancellation of Everwild, with developer Rare being restructured.

That followed another mass layoff of 650 people across Xbox, which itself came around nine months after nearly 2,000 roles were cut.