Microsoft considers making Xbox a separate company

Microsoft is exploring options to reorganize its Xbox business, including the possibility of turning it into a separate company. Reuters reports, citing The Information and three people familiar with the discussions, that the company is evaluating several potential paths forward.

The options under consideration reportedly include restructuring Xbox as a standalone subsidiary with its own management team and brand, similar to LinkedIn and GitHub. Microsoft is also said to be exploring the creation of a joint venture with outside partners or even a full sale of the business.

No immediate changes are expected. According to the report, the discussions remain preliminary, and Microsoft is not planning a restructuring in the near term.

Why Microsoft is considering a shake-up

The main issue is financial performance. Sources say Xbox's operating margin has fallen to roughly 3% this fiscal year.

Over the past five years, Microsoft has invested more than $20 billion into gaming across content, hardware, and platform development. Despite that spending, annual revenue has reportedly declined by nearly $500 million over the same period.

Microsoft CEO Satya Nadella has previously acknowledged that the company spent years effectively subsidizing Xbox rather than generating meaningful profits from it. The current goal is to turn the gaming division into a sustainable business.

Making Xbox a subsidiary similar to LinkedIn or GitHub would give the business more independence while keeping it under Microsoft's control. A joint venture or sale, however, would represent a much more significant shift and could mark the end of Microsoft's two-decade history as the owner of a major console platform.

Analysts say the final decision will likely depend on how quickly the company can improve the division's financial performance.

A new strategy — and more layoffs

The restructuring effort is being led by Asha Sharma, who took over Microsoft's gaming division in February 2026, succeeding Phil Spencer.

Her strategy focuses on accelerating releases from some of Microsoft's biggest franchises, many of which have gone years without major new entries. Halo has not seen a major release since 2021, Fallout's last mainline installment arrived in 2015, and The Elder Scrolls has not received a new core game since 2011.

To free up resources, Microsoft plans to shut down underperforming studios and projects while redirecting investment toward its largest franchises. Overall development spending for fiscal year 2027 is expected to remain roughly unchanged.

The overhaul is also expected to bring significant job cuts. According to Bloomberg, Xbox plans a major round of layoffs after Microsoft's fiscal year ends on June 30, along with reductions in marketing and other operational expenses.

Microsoft's plan to increase investment in flagship game franchises has already been approved by Nadella and CFO Amy Hood. However, the final budget has not yet been finalized and could still change.