Asha Sharma, Microsoft’s new gaming chief, and Xbox Studios head Matt Booty delivered a stark internal memo on Xbox Wire, calling for an “Xbox reset.” The document flags a 3% profit margin, far below industry norms and the 30% target Microsoft publicly pursues. Executives say the brand is bleeding value after a series of costly moves.

Leadership blames “over‑extension” from the $69 billion Activision deal, which sat atop roughly $20 billion in other acquisitions, platform bets and console subsidies over five years. Despite that spend, gaming revenue has slipped nearly $500 million versus five years ago, leaving the division under‑invested in its flagship franchises and prompting a wave of studio layoffs and cancellations.

On the console side, rising storage and RAM costs have hit Microsoft harder than rivals, a consequence the memo links to supply‑chain choices made since 2019. Executives conclude the brand needs disciplined spending, a refreshed exclusive slate and tighter hardware economics to stop eroding market share.

Gamers can expect fewer surprise releases and tighter pricing as Xbox trims its portfolio, while rivals may capitalize on the gap. The memo signals a decisive shift from Microsoft’s previous multi‑platform push toward a tighter, profit‑focused strategy.