Xbox has made its business reset public, and the message is unusually blunt for an official platform-holder post.
In a memo sent to Team Xbox employees and published publicly, Asha and Matt said Xbox is entering its "next 100 days" with hardware supply pressure, weak margins, an overextended studio system and platform infrastructure that is not ready for the company's next phase. The memo frames those problems alongside some early signs of recovery, including renewed Game Pass growth after more than eight months of decline.
The clearest player-facing issue is hardware. Xbox says it is in a "hardware component crisis," with console storage component prices more than twice as high as last fall when its CEO joined in February. Those costs have doubled again since then, and Xbox says it expects another significant increase by the 2027 holiday season, taking storage prices to more than five times what it paid two years earlier.
That pressure is already affecting supply. The memo says Xbox is "currently unable to make as many consoles as players want to buy," and that Microsoft needs a new business model and new partnerships for hardware while staying committed to Helix, the company's next Xbox hardware plan. That lines up with recent Xbox comments that Project Helix is being rethought around component shortages, but this memo puts the issue inside a broader reset of the whole business.
Xbox says the old spending pattern cannot continue
The memo also lays out a financial problem behind Xbox's strategy shift. Xbox says it will end the fiscal year at about a 3% accountability margin, down year over year. Excluding Activision Blizzard King, the company says it has spent more than $20 billion over the past five years on content, platform investment and hardware subsidy, while annual revenue has declined by nearly half a billion dollars during that same period.
"Going forward, this cannot continue," the memo says.
That is the hard edge behind Xbox's current messaging. More games on more devices is still part of the pitch, but the memo says the existing balance between hardware subsidy, subscription growth, studio investment and platform expansion is not sustainable enough.
Game Pass is presented as one of the early fixes. After a long decline, Xbox says the service has started growing again. The line is notable because Microsoft has only recently been dealing with the fallout from a previous stretch where Game Pass lost millions after a price hike. The memo does not give a new subscriber figure, so the scale of that recovery remains unclear.
Studios, exclusives and platform tech are all under review
Xbox also says its studio system expanded to serve several strategies at once, including subscription, streaming and devices. The memo says that left the company overextended, while some major franchises have not been funded well enough to "compete and win."
At the same time, Xbox is not backing away from exclusives. It points to the Xbox Games Showcase, FanFest, Gears of War: E-Day in 2026 and Clockwork Revolution in 2027, saying players should expect signature exclusives every year. Earlier this week, Xbox also drew attention to Gears of War: E-Day and Clockwork Revolution as Xbox console exclusives, a useful signal after months of questions about where Microsoft's first-party games will appear.
The memo says Xbox needs to reassess the balance between first-party projects, third-party exclusives, new IP and investment priorities for the next five years. That does not name cancellations, cuts or specific franchise changes, but it does put Xbox's content pipeline under formal review.
The platform stack is under the same pressure. Xbox says its current infrastructure is too complex, depends on hundreds of systems and has become too reliant on vendors. The company says it plans to rebuild parts of its stack, become more self-reliant as an engineering organization and look at capabilities across Xbox, including possible M&A, to compete in hardware, PC, mobile and streaming.
Xbox still wants to present the reset as a turnaround rather than a retreat. The memo says more platform updates shipped in the past 100 days than in the previous year combined, partner activity is at a record high and Player Voice now gives Xbox a 24/7 feedback channel from players, creators and developers.
Xbox is no longer treating its current model as something that only needs cleaner messaging. It is publicly saying hardware costs, content spending, Game Pass, exclusives and platform engineering all need work at once. For Xbox players, the next phase is likely to shape what Microsoft builds, funds, ships and sells long before the next console arrives.