Microsoft CEO Says Xbox Will Return to Growth After Major Layoffs

Microsoft CEO Satya Nadella says Xbox is expected to return to growth next year as the gaming business undergoes one of its largest restructurings.

Speaking on the Sources podcast, Nadella backed Xbox CEO Asha Sharma’s ongoing “reset,” which has led to thousands of planned job cuts, studio divestments, and major organizational changes. I think Asha and the team have said that Xbox is going to get back to growth this next fiscal year, and that’s the plan they’re executing on, and in that process, do a bang-up job of producing some great games,” Nadella says.

“I feel fantastic about the IP we have right now,” Nadella said. “If I look at the studios, the IP portfolio we have, and our ability to then take that and produce great games going forward, I feel fantastic.”

Nadella also described the “streamlining” under Sharma as “great to see,” adding that Microsoft now needs to build a sustainable business model that can reach more players. “We want to be a great publisher and a great platform provider for games across both PCs and Xboxes,” he said. The comments follow another 268 layoffs across Halo Studios, other first-party developers and Xbox management. In July, Microsoft announced approximately 1,600 immediate job cuts as part of plans to eliminate roughly 3,200 Xbox positions throughout fiscal 2027.

The restructuring has dramatically reshaped Microsoft’s gaming division. Activision is taking a larger role with Halo, while Rare and World’s Edge have moved under the Activision organization. Turn 10 has been combined with Playground Games, and Obsidian has moved under Bethesda. Microsoft has also divested Compulsion Games, Double Fine and Undead Labs, while Ninja Theory faces an uncertain future.

The upheaval comes after a difficult financial year. Microsoft reported Xbox revenue declined 10 percent during its fiscal fourth quarter, with content and services revenue also falling 10 percent. Nadella previously told investors Microsoft was making “necessary decisions” to reset Xbox for long-term growth, predicting the business would return to growth in fiscal 2027.

Despite the restructuring, Microsoft continues making major publishing moves. Earlier this month, Xbox took over publishing duties for Hideo Kojima’s Physint after PlayStation exited the project.

For Microsoft, the next challenge is proving a much smaller Xbox organization can deliver the promised turnaround.