Analysis: Reports of more gaming layoffs at Microsoft spark questions about future of Xbox

Another wave of “substantial” layoffs is expected to hit Microsoft’s gaming division next week, according to a new report from Bloomberg, following earlier reporting from The Verge.

The cuts will reportedly affect every department within the Xbox business. We reached out to Microsoft for details.

This is the fourth major round of dismissals at Xbox in the last 18 months and the second in 2025, following a cut in January that affected an unknown number of workers.

It also follows other reported layoffs impacting Microsoft’s sales and marketing orgs, on top of the company’s decision to lay off about 6,000 people in May.

The latest round of gaming layoffs is an awkward capstone to Xbox’s June, which has otherwise been marked by significant hype for the future.

Microsoft began the month by unveiling the Xbox ROG Ally, a handheld gaming PC made in conjunction with the Taiwanese computer company Asus, which marks its entry into the portable console market.

Xbox president Sarah Bond subsequently announced on June 17 that Microsoft has partnered with the American company AMD to “co-engineer” the next generation of Xbox console hardware.

On the one hand, this is perfectly in keeping with Xbox’s established Play Anywhere initiative. While the company is still in the console market, its strategy for most of the last decade has been to chip away at the accepted definition of a video game console. Through cloud gaming, cross-platform support, and now portable systems, the idea is that the Xbox is an overall gaming experience that’s wholly decoupled from any specific hardware.

On the other, Bond noted during the June 17 reveal that Xbox is “working closely with the Windows team to ensure that Windows is the number one platform for gaming.” In conjunction with the reveal that the Xbox Ally runs on Windows 11 Home and will be compatible with theoretically competitive storefronts like Steam, this has been seen as a tacit admission that the walls between Xbox and Windows will be getting even thinner in the future. Some analysts have gone so far as to forecast that the 10th-generation Xbox will simply be a specialized desktop PC.

That, in turn, ties in with recent stories that Xbox is under pressure from Microsoft to increase profits, particularly in the wake of its costly acquisition of Activision-Blizzard. As per Microsoft’s last quarterly report, its gaming division still runs in the black, but Xbox hardware sales are on the decline and it makes up a surprisingly small part of Microsoft as a whole.

Against that backdrop, it’s possible that the plan is to whittle down Xbox until it can be quietly consolidated into the Windows department. With the increasing focus on the Windows OS in Xbox, it suggests that future versions of the Xbox would simply be boutique items for consumers who’re already invested in the Xbox gaming ecosystem, rather than standalone items in their own right.

It’s unlikely that Microsoft will actually exit the video game industry in the foreseeable future, but the picture painted here is that it’s no longer willing to give Xbox as long a leash as it previously had. As a result, the next generation of Xbox hardware, such as it is, will also mark a pivotal moment for Xbox as a brand identity. As it approaches its 25th anniversary, Xbox is trying as hard as it can to be everywhere at once, but that runs a significant risk of putting it nowhere in particular.