Microsoft Corp.’s Xbox division this week said it will cut 3,200 jobs in a massive effort to reset sharp declines in quarterly revenue.

A total of 1,600 jobs will be terminated immediately with the remaining to be finalized by fiscal year 2027.

Xbox CEO Asha Shar said in an internal email made public that Xbox is operating at margins below industry competitors, at a smaller install base, and a higher cost structure. In addition, growth in Xbox Game Pass and multi-platform initiatives fell short of internal expectations.

As a result, several previously acquired studios will become independent or be sold. Compulsion Games and Double Fine will become independent and maintain IP control, while Ninja Theory and Undead Labs will be sold to continue development of Senua and State of Decay. In addition, no announced first-party projects will be canceled.

Shar projected a return to growth in 2027.