State Of Decay And Hellblade Devs Are Being Sold, But Buyers Remain Mysterious For Now

As part of Microsoft's restructuring announcement today for Xbox that is resulting in mass layoffs, the company also announced that it is selling off two of its development studios: Undead Labs and Ninja Theory.

Xbox CEO Asha Sharma said those two studios have "entered terms to join new ownership with funding" to help finish Senua (Ninja Theory) and State of Decay 3 (Undead Labs). Microsoft did not name the mystery buyers, however.

Senua is a brand-new Hellblade action game that was only just announced at the Xbox Games Showcase in June. State of Decay 3, meanwhile, has been in the works for a very, very long time.

Additionally, Microsoft announced that Compulsion Games and Double Fine are becoming independent studios again and will retain their own IP and catalogs. Additionally, Microsoft is giving those teams "runway" funding for their "next games," Sharma said.

What's more, Microsoft's Arkane studio in France is "beginning required consultation" as part of labor laws in the country. This is being done to "review potential strategic options," Sharma said.

Beyond the changes to the Xbox studio structure, Microsoft announced that it is laying off 1,600 Xbox employees today and another 1,600 people in the next year. On top of those cuts, Microsoft is enacting layoffs beyond Xbox for a total of 4,800 layoffs across the entire company; that's about 2.1% of Microsoft's total workforce.

Why is Microsoft doing this?

Microsoft executive Amy Coleman said Microsoft is enacting these mass layoffs because of the changing business landscape.

"The way technology is built, deployed, and used is transforming faster than at any point in my time here. Our customers’ needs are shifting, the business models that serve them are shifting, and that means the work itself--what we do, where we focus, and how we’re organized--has to transform too," she said. "Companies don’t get to choose whether their industry changes; they only get to choose whether they change with it. That means we will need to adjust resources and roles and shift how we operate so we can have the greatest impact for our customers."

She also clarified that the jobs being cut "are not being replaced by AI." Microsoft is making significant investments into AI, with many believing it's a bubble that's set to burst, leading to further pain down the road.

For her part, Sharma said the Xbox business is "not healthy," with Xbox operating at lower margins compared to its peers. She said Microsoft made a bet on Xbox Game Pass and multiplatform releases, along with a "broader portfolio" of content, but these efforts "did not grow at the pace we expected."

"As that happened, our core business weakened, and we added more teams, more investment, and more time, hoping for a better outcome. And now the industry is facing the most severe hardware crisis in its history. We must reset Xbox," she said.

Microsoft has made billions in profit this year

Microsoft is the No. 4 biggest company on earth with a market cap of more than $2.8 trillion. That's down significantly over the past year, as Microsoft's share price has fallen, but the company remains truly gigantic, with revenue and profit levels reflecting that.

For Microsoft's latest quarter that ended April 29, the company pulled in $82.9 billion in revenue (up 15%) and made a profit of $31.8 billion (up 23%).

Microsoft stockholders might not have been happy with the company's share price falling, but for the past quarter alone, Microsoft paid out $10.2 billion to shareholders via dividends and share repurchases.

These are signs of strength and health for Microsoft. Xbox is a very small piece of Microsoft's overall business, but seeing such strong numbers coupled with the mass layoffs at Xbox is not sitting right with many.