Microsoft’s Xbox division is reportedly planning layoffs as new Xbox CEO Asha Sharma plans a “reset” for the beleaguered gaming business.

Bloomberg, citing anonymous sources, first reported Wednesday that Xbox was planning “major job cuts” within the division in early July after Microsoft’s fiscal year ends on June 30. The same day, Sharma and Xbox Chief Content Officer Matt Booty said in a memo to employees that after their first 100 days on the job reviving Xbox, the next 100 days would be devoted to a major overhaul — or a reset, to borrow gaming parlance.

After touting the recent successes of Xbox — Microsoft has been hard at work to reverse the decline in subscribers to its Game Pass service — Sharma and Booty laid out the realities the gaming business needs to navigate.

Microsoft has poured billions of dollars into its gaming division over the past five years, even excluding the $69 billion purchase of Activision Blizzard. The memo said investments in Xbox have surpassed $20 billion since 2021. At the same time, the division’s annual revenue has declined by nearly $500 million.

“Going forward, this cannot continue,” the memo said.

Amid the artificial intelligence boom, which has helped boost Microsoft’s cloud computing sales, Xbox is facing a hardware component crisis. The cost of storage components for gaming hardware has quadrupled since last fall and Microsoft expects another significant increase heading into 2026 holiday shopping season.

As AI demand increases, companies have been spending more on specialized hardware. That coupled with AI’s extraordinary need for memory is leading to higher costs.

For consumers that means demand is outpacing supply for Xbox consoles. Because of this, Xbox needs a new business model for its next-generation console, code-named Helix, according to the memo.

“Our current platform infrastructure is not built for the battle ahead. … 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,” the memo said.