Undead Labs could be among the Xbox studios affected by Microsoft's next round of gaming cuts, according to new reporting around layoffs expected to begin in early July.
A GamesBeat report says Communication Workers of America District 9 vice president Frank Arce discussed pending Microsoft layoffs during a recent press call. The report names Undead Labs, Double Fine Productions, Compulsion Games and Ninja Theory as studios that may be at risk, with more cuts also expected at Blizzard and Bethesda.
Microsoft has not announced those cuts or confirmed that Undead Labs is closing. The current reporting should be treated as a warning about where layoffs may land, not confirmation that any individual studio has been shut down.
State of Decay 3 just resurfaced at Xbox
The Undead Labs detail stands out because State of Decay 3 finally showed gameplay during Xbox's June showcase. Xbox's official materials list the sequel for 2027, with plans for Xbox Series X|S, PC, cloud, Game Pass, Xbox Play Anywhere, Steam and PlayStation 5.
That timing makes the reported risk sharper than a normal staffing rumor. State of Decay 3 is not an old project quietly fading from view. It is an active first-party survival game that Xbox just reintroduced with shared world co-op, settlement building, Plague Nests and a larger open world.
Xbox's own State of Decay 3 page still describes the game as the latest entry from Undead Labs, with players building communities, claiming settlements and fighting a new zombie evolution in a world gripped by blood plague. No release date beyond 2027 has been announced.
Xbox's studio reset keeps getting more specific
The new report also fits a broader pattern around Microsoft's gaming business. Earlier this month, Xbox layoffs were reportedly looming after a reset memo from Xbox CEO Asha Sharma, who said the division had become overextended across studios, subscription, streaming and devices.
Since then, separate reports have put several smaller Xbox-owned teams under scrutiny. Gamers Now previously covered reports about Compulsion Games' uncertain future and later layoffs at the South of Midnight studio, while Double Fine publicly acknowledged closure rumors with a single emoji.
The newly reported list broadens that concern to Undead Labs and State of Decay 3. The affected studios alone reportedly represent more than 400 jobs that could be lost if the cuts go ahead as described, with GamesBeat's reporting characterizing the planned reductions as potentially one of the biggest single series of cuts for Xbox.
Microsoft has not commented on the Undead Labs claim. State of Decay 3 remains officially scheduled for 2027, but the report puts one of Xbox's newly showcased first-party games back under a staffing cloud only weeks after its gameplay reveal.