Microsoft is reportedly evaluating plans to spin off its Xbox division or convert it into a wholly owned subsidiary. The company is examining various strategies, including a potential sale, as its struggling gaming operations gear up for a significant overhaul. Reports indicate that Microsoft intends to boost funding for key first-party titles such as Fallout, Halo, and The Elder Scrolls to speed up their progress.

The Information detailed these restructuring ideas for the gaming unit on Friday. Drawing from three sources familiar with internal talks, the coverage noted via Reuters that Xbox might be separated or turned into an independent subsidiary.

With its main focus on AI and cloud services, Microsoft is also said to be open to external partners and transforming Xbox into a joint venture. Such a step could simplify any future sale of the gaming business. No immediate changes are planned, but all possibilities remain under review according to the report.

Xbox Gears Up for Reset and Staff Reductions

This news follows Xbox CEO Asha Sharma's recent statement that the division must reset its operations over the coming 100 days in areas like hardware, content, and services. In a staff memo, Sharma highlighted a tough financial picture, noting the unit's accountability margin stood at just 3 percent based on Microsoft's internal profitability measures. She also disclosed that Xbox revenue had dropped by nearly half a billion dollars over the past five years.

Bloomberg indicated that the reset will involve substantial layoffs starting next month. Beyond workforce and budget reductions, some studios could face closure as part of the adjustments.

Despite these measures, Sharma acknowledged in her memo that major franchises had lacked sufficient support to match competitors. She has secured approval from Microsoft CEO Satya Nadella and CFO Amy Hood to raise spending on successful series like Fallout, The Elder Scrolls, and Halo in the next fiscal year to hasten development.

Xbox has faced delays in launching new installments of flagship franchises. A remake of Halo: Combat Evolved is scheduled for next month across PC, PS5, and Xbox. Bethesda continues work on additional Fallout titles and The Elder Scrolls 6, though these remain years from release.